Ask most people what would happen to their finances if they could not work for a year and the honest answer is a shrug. Employer sick pay runs out faster than people think. Statutory sick pay in the UK is a fraction of most salaries. If you are self-employed, there is nothing at all.

Two products exist to fill that gap, and they are constantly confused with each other. They do very different jobs, and the difference decides which one you actually need.

The one-line difference

  • Critical illness cover pays a lump sum if you are diagnosed with one of a specific list of serious conditions.
  • Income protection pays a monthly income if you cannot work because of any illness or injury, for as long as you remain unable to work, up to the end of the policy.

That is the whole distinction, and everything else follows from it.

Critical illness: a lump sum for a named diagnosis

A critical illness policy comes with a list. Cancer, heart attack and stroke are on every list, and they account for most claims. Beyond those, lists vary widely between insurers, from a dozen conditions to well over a hundred, and the definitions matter as much as the names. Some cancers are excluded; some conditions must reach a certain severity.

If you are diagnosed with something on the list, you receive the sum you insured, and the policy usually ends. What you do with the money is up to you: clear the mortgage, pay for private treatment, adapt the house, or simply stop worrying about money while you recover.

What it does not do is pay for the far more common situation of being unable to work because of something that is not on the list. A bad back, a mental health crisis, long Covid, a serious injury from a fall: none of these triggers a critical illness claim, and between them they cause far more time off work than the conditions that do.

Income protection: a salary when you cannot earn one

Income protection does not care what is wrong with you. If a doctor says you cannot do your job, it pays a percentage of your income, typically 50 to 70%, every month, until you can work again, retire, or the policy term ends. It can pay out more than once, for different conditions, over the life of the policy.

That breadth is why it is the product that people who work in protection tend to buy for themselves. It covers the thing that actually happens.

Three settings shape both the cover and the cost:

The deferred period. How long you wait before payments start, usually a choice between four weeks and twelve months. Match it to what you already have: if your employer pays full sick pay for six months, a six-month deferred period is far cheaper and you lose nothing. If you are self-employed with no sick pay, you probably want the shortest wait you can afford.

Own occupation or any occupation. An “own occupation” policy pays if you cannot do your job. An “any occupation” policy pays only if you cannot do any job, which for most people means almost never. The difference in price is small and the difference in whether it pays out is enormous. Own occupation is the one to have.

The benefit period. Some policies pay for a maximum of one or two years per claim; these are cheaper and sometimes called budget or short-term income protection. Full policies pay until the policy ends. Know which you are buying.

So which one?

For most working people, if you can only afford one, income protection is the more important product. It covers the most likely event, being unable to work, whatever the cause, and it replaces the thing that actually keeps the household running: monthly income.

Critical illness cover is a good addition where a lump sum would make a real difference, such as clearing a mortgage, and it is often bundled with life cover for that reason. It is a poor substitute for income protection, because most of the reasons people stop working are not on its list.

If you are self-employed, income protection moves from “important” to “close to essential”. There is no employer safety net underneath you, and the deferred period should be set with that in mind.

The traps in the small print

Pre-existing conditions. Anything you have been treated for, or seen a doctor about, is likely to be excluded or loaded. Disclose everything at application; a claim refused for non-disclosure is the worst outcome of all.

Mental health. Historically some policies limited or excluded mental health claims, which are now among the most common. Check the wording.

Guaranteed or reviewable premiums. Guaranteed premiums are fixed for the term. Reviewable premiums can rise, and usually do, often steeply as you age. The guaranteed version costs more at the start and is usually worth it.

Indexation. A benefit fixed in today’s money is worth less every year. Index-linked cover costs a little more and keeps pace.

Employer benefits are not portable. Group income protection through work is excellent while you are there, and gone the day you leave. If you are counting on it, know that it is conditional.

Where to go from here

These two products, together with life cover, are the three safety nets a household can put in place. Most families do not need all three at the maximum; they need the right combination for their situation, bought once and reviewed when life changes.

If you are moving abroad or already have, there is an extra layer: whether your existing policies still work once you leave, which is covered in protection when you move abroad.

For a conversation about your own situation, there is a free 15-minute intro or a full hour for €75. We do not recommend specific products or providers, so the conversation is about what you need, not what anyone is selling.

Educational guidance, not regulated financial advice. Policy terms differ between insurers and countries. Nothing here replaces advice from a regulated adviser who knows your full circumstances.