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Critical Illness Cover vs Income Protection: What’s your best option?

Critical Illness Cover Vs Income Protection: What’s Your Best Option?

Group Critical Illness Cover and Group Income Protection often create confusion. On the face of it they look pretty similar: they both provide financial protection for employees when they are unable to work for health reasons.

No surprise then that we often have clients asking: “Do I need both? Or should I opt for one or the other?”

To help end the confusion once and for all, this guide highlights the differences between them and how they can benefit employees and, by extension, your business in different ways.

Need help creating the perfect blend of employee benefits for your company? Our friendly experts are here to help. Email [email protected] or click on the bottom right chatbox.


The basics: Critical Illness Cover vs Income Protection

Critical Illness Cover

One of the newer employee protection policies currently in the UK market, Group Critical Illness cover is quickly becoming a popular choice for businesses.

The cover provides staff with a tax-free lump sum payment in the event of them becoming critically ill, as defined by the policy*. The payment is usually calculated as a multiple of that employee’s salary (e.g., either 2 x or 4 x their wage) or a specific figure can be selected by the employer.

Group Critical ensures staff are in a better place to handle the financial ramifications of suffering a serious illness. An employee can use the money they receive whichever way they feel is best to aid their wellbeing. Whether this is on paying medical bills or grocery shopping, every bit helps to alleviate the physical and mental effects of suffering with an illness.

*The employee must be suffering with a critical illness already specified under the policy to make a claim. The most common ones include: cancer, heart attacks, or strokes.

Income Protection

Group Income Protection provides financial support and rehabilitation services to staff unable to work due to an illness or serious injury. Also known as Group Sick Pay Insurance, the policy covers any kind of illness or medical condition that prevents an employee from being able to perform their job.

The financial support is set up as a series of monthly payments beginning after a deferral period of typically 13 to 52 weeks. The payments mimic a normal employee salary and is made up of a percentage of the covered employee’s existing wage. This percentage is usually set at a maximum of 75% of a staff’s wage!

Payouts are continued until an employee returns to work, or until a specified duration set up in the agreement. The most extensive policies can keep running until retirement or death.


What sets them apart?

It’s worth summarising the differences of Critical Illness Cover vs Income Protection Insurance.

The BIG key difference

Critical Illness Cover provided financial protection for people suffering life changing illnesses (or disabilities) for which there is no realistic chance of returning to work, while Income Protection provides financial payment to employees above and beyond statutory sick pay, and with the expectation that they will be able to return to work.

Illnesses covered

Employees covered under Group Critical must be suffering a specific illness which is listed in the policy. But for Income Protection, it includes any illness or injury which prevents staff from working.

Payments made

Another key difference is how they process payments. Critical Illness cover is paid in a single lump sum, whereas Income Protection claims are paid out in monthly instalments.


Critical Illness Cover comes in at significantly lower cost than Income Protection as claims are less likely to be made. According to data from Canada Life, the average cost of Income Protection Insurance is £3,042, while Critical Illness Cover is £2,020.

How much will Group Income Protection or Critical Illness Cover cost your business? Contact our team of brokers for quotes tailored to your business – FREE of charge and without contractual obligations.

Further reading: How Critical Illness Cover quotes are calculated.


Pros of Critical Illness cover

  • Reassures staff they are financially looked after in the event of a lifechanging illness
  • A typical plan provides cover for a wide range of conditions – usually around 19 medical conditions
  • Policies offer the option for added value services e.g., child cover or further cancer support services – making it extremely adaptable for many employees
  • Attracts corporation tax relief (if funded by employer)
  • Boosts staff retention
  • Makes staff feel valued on an individual level
  • Helps attract staff to the business
  • Easily paired up with other benefits e.g., Group Life Insurance or Group Income Protection – each aimed at providing comfort to employees during difficult times
  • Provides a lower cost insurance option for employers compared to Income Protection insurance
  • Provides an adaptable option for employers – coverage and pay-out amount can be tailored to fit any budget


Pros of Income Protection

  • Provides a steady and secure income for staff when statutory sick pay comes to an end
  • No limit on claims
  • Includes option for vocational rehabilitation inc. treatments, physiotherapy, mental health support services – helping staff even further to get back to working life
  • Minimizes the impact of key employees being absent from the business – speeding up the return-to-work process
  • Saves the company money – costs of employee sick pay are entirely covered by the insurance provider
  • Neither employee or employer is taxed – for the employee it’s not considered a ‘benefit in kind’ and for the employer it’s an allowable business expense. BUT, if a claim is made, then the employee would be taxed as normal via payroll.
  • Gives staff peace of mind for themselves and families (extra cover can be included for family members)
  • Shows you are an employer who cares – boosting retention levels, and ensuring positive word-of-mouth for your business
  • Gives business access to absence management specialists
  • Available for any size organisation (with at least 2 employees covered!)

Get further advice and support from the Hooray team

As you can see, financial protection is the aim of the game when it comes to these two policies. But the situations in which they are used, are very different. Therefore, it’s perfectly possible to invest in both schemes should you wish to. However, it all depends on the needs of your workforce – they may also want more proactive health support such as health insurance or cash plans.

How do you make a decision? The best way is to talk to an award-winning broker like Hooray. We give FREE expert advice on the different options available when it comes to UK employee benefits. We’ll happily field all your questions, and, if required deliver a variety of quotes tailored to your business.

For FREE quotes and honest advice on Critical Illness Cover, Group Income Protection, or any other employee benefit, contact our team today on 01273 222805 or email us at [email protected] for no-obligation advice and support. 

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