# Income protection vs critical illness cover — which one do you need? > Insurance · Last updated 6 April 2026 Canonical HTML: https://moneyguide.org.uk/insurance/income-protection-vs-critical-illness/ Markdown mirror: https://moneyguide.org.uk/insurance/income-protection-vs-critical-illness.md ## Quick answer Income protection and critical illness cover both pay out if illness or injury stops you working — but they work very differently. Income protection and critical illness cover both pay out if illness or injury stops you working — but they work very differently. For most working-age earners, income protection is the higher-value protection. ## Key facts - Income protection: pays a regular monthly income (typically 50–65% of gross salary) until you can return to work or retire. - Critical illness: pays a one-off tax-free lump sum on diagnosis of a defined condition (cancer, heart attack, stroke etc.). - Claim rates: income protection insurers paid around 80% of claims in 2024 (ABI data); critical illness around 91%. - Statutory Sick Pay (2025/26): £118.75/week for up to 28 weeks — woefully insufficient for most household budgets. ## How income protection works You choose a monthly benefit (usually capped around 65% of gross salary), a deferred period (4, 8, 13, 26 or 52 weeks — longer means cheaper premiums), and a ceasing age (often State Pension Age). If you can't work due to illness or injury (and your sick pay runs out), the insurer pays your benefit until you can return to work, the policy ends, or you die. Quality policies use an 'own occupation' definition — they pay if you can't do your current job, not just any job. Budget policies use 'any occupation' or 'activities of daily working', which is much weaker. ## How critical illness cover works You pick a lump sum (e.g. £100,000) and a term. If you are diagnosed with one of the listed serious illnesses during the term, you get the lump sum tax-free. The policy ends after a payout (or earlier if combined with life cover). It does NOT pay if you are unable to work for a non-listed condition — even back pain or mental health issues that may stop you working for years. Cheaper policies cover fewer conditions; comprehensive ones cover 80+. Always check the exact wording of the conditions you most care about — e.g. cancer cover usually excludes some early-stage cancers. ## Which to prioritise For most working-age earners with mortgages and children, income protection is the primary need: the most likely thing to derail your finances is being unable to work for months or years. Critical illness is most useful as a lump-sum buffer for one-off costs after a serious diagnosis — clearing a mortgage, adapting a home, or replacing a partner's lost income while they care for you. If budget allows, both: income protection to replace earnings monthly, plus a smaller critical illness lump sum. If you can only afford one, income protection covers the wider range of scenarios. ## Frequently asked questions ### What about my employer's sick pay? Generous employer sick pay (often 3–12 months at full pay) is the biggest factor in how much cover you actually need. Choose a deferred period that matches: if employer pays 6 months, a 26-week deferred period keeps premiums down. ### Are payouts taxable? Personal income protection benefits are tax-free. Critical illness lump sums are tax-free. Group income protection arranged by your employer is normally taxable as salary. ### Can I get cover if I have pre-existing conditions? Yes, but expect exclusions for the condition. Some specialist insurers will cover people with diabetes, mental health history or specific cancers in remission — work with a protection-specialist broker. ## Primary source https://www.gov.uk/consumer-protection-rights ## Related - [Insurance guide](https://moneyguide.org.uk/insurance/) - [Critical illness cover explained](https://moneyguide.org.uk/insurance/critical-illness-cover-explained/) - [Statutory Maternity Pay calculator](https://moneyguide.org.uk/tools/statutory-maternity-pay-calculator/) --- Independent UK money guidance from [Money Guide](https://moneyguide.org.uk). Information only — not regulated financial advice.