Do I need life insurance or income protection?


If you’ve ever thought about how your family will support themselves if you’re injured, unable to work, or pass away, you’ve probably considered some form of protection insurance. The most common policies are life insurance, income protection, and critical illness cover. Each policy is different, but which one is right for you?

Life insurance

The most common and most well-understood type of protection insurance, life insurance pays out to your family in the event of your death. Usually, your spouse or dependents receive a lump-sum. 23.7 million people in the UK, including 50% of households with outstanding mortgages, have at least one earner with a policy, though this has fallen year-on-year, down from 29.3 million five-years-ago.

A common misconception is that insurers regularly reject life insurance claims, but most are accepted. In 2018, insurers approved 97% of life insurance claims.

Critical illness

Life insurance policies usually only pay out in the event of death, though some will pay in advance if you receive a terminal diagnosis. You won’t get a lump-sum payment if you’re diagnosed with a critical illness, even if it stops you working. To cover this scenario, you’ll need a critical illness policy, which gives you a one-off lump sum payment. Usually, the policy will specify what counts as a critical illness, with the majority of claims made for heart attacks, strokes, and cancer.

While critical illness cover is usually separate from life insurance, many insurers offer hybrid policies that cover both.

Income Protection

Compared to life insurance and critical illness cover, income protection is rare. According to research by This is money, only 17 percent of households have income protection. In the UK, people are more likely to have pet insurance than income protection.

Income protection covers you for the long-term, rather than paying out a lump-sum. If you’re unable to work, income protection pays out a portion of your salary each month, with most policies covering between 60–80 percent of income. For the customer this means that your lifestyle doesn’t have to change too much, you know that you’ll have money coming in every month helping you cover the mortgage and bills so that you can focus on recovery. Income protection policies cover both physical and mental health conditions and also payout in the event of a severe accident. Policies are tailored and can significantly vary in price depending on age, lifestyle, job, and your current health. Income protection tends to be more tailored and complicated than other forms of insurance, but according to Cavendish online, it’s the most likely to be claimed on.

Which one is best for me?

This will depend on you. If you’re single, with no dependents that rely on you financially, life insurance doesn’t give you many advantages, but income protection and a critical illness policy will. For most people, especially younger people, an illness or accident preventing them from working for some time is a more likely occurrence than death or critical illness diagnosis. It’s also important to check with your employer, as some employers will have policies in place for death or injury in service.

Speaking to an independent insurance advisor will help you find the most suitable deal for your family and lifestyle, which could be one or could be a mixture of all three.

If you think income protection is right for you, check out VouchForMe’s unique peer-to-peer protection insurance, by joining up with a group of like-minded peers, VouchForMe’s income protection gives you a monthly income, if you’re off work for longer than a month. Best of all there’s no monthly premium. So, if nobody makes a claim the money remains yours. Find out more on our webpage.