When it comes to protecting your finances, there are a few different types of cover that often get mentioned—but knowing which one does what (and which one you actually need) can be confusing.
Do I need life insurance if I’m not married?
Does income protection cover redundancy?
Is critical illness the same as life cover?
These are all common questions. So here’s a quick guide to what each policy does, how they’re different, and how to work out what might be right for you.
Life Insurance – The One That Pays Out if You Die
What it does:
Life insurance pays out a lump sum (or can be set up to provide a monthly amount) if you pass away during the policy term.
Who it’s for:
Anyone who has financial dependents—partner, children, mortgage co-owner, or anyone who would be financially affected if you were no longer around.
When it pays out:
- If you die during the policy term
- Some policies include terminal illness cover if life expectancy is less than 12 months
Typical use:
To clear a mortgage, provide for family, or cover funeral costs.
Worth knowing:
If you’re single with no children, this may not be your top priority—there may be other types of cover more relevant for you.
Critical Illness Cover – The One That Pays Out if You Get Seriously Ill
What it does:
This policy pays a tax-free lump sum if you’re diagnosed with a specific serious illness or condition covered by the policy (like cancer, heart attack or stroke).
Who it’s for:
Anyone who would struggle financially if they had to stop working due to a serious health issue.
When it pays out:
- If you’re diagnosed with a qualifying illness (check your policy!)
- While you’re still alive
Typical use:
To cover lost income, pay off a mortgage or debt, or fund private treatment or home adaptations.
Worth knowing:
Critical illness cover is not the same as income protection—it won’t pay a regular income. It’s a one-off lump sum and will only pay on diagnoses of a critical / serious illness as specified in the policy.
Income Protection – The One That Covers Your Income if You’re Too Ill to Work
What it does:
Income protection pays you a regular monthly income if you can’t work due to illness or injury.
Who it’s for:
Anyone who relies on their income to pay the bills (which is… most of us).
When it pays out:
- After a chosen waiting period (called the “deferred period”)
- If you’re signed off work for a health-related reason (physical or mental)
- Typically up to around 60% of your gross income
Typical use:
To help cover your monthly expenses like mortgage, bills, food, and everyday living costs.
Worth knowing:
This won’t cover redundancy—but there are separate policies for that. It also tends to be the most claimed one of all three.
So… Which One Do I Need?
Here’s a quick comparison:
| Type | Pays Out When… | Payout Type | Good For… |
| Life Insurance | You pass away | Lump sum | Paying off a mortgage, leaving money to family |
| Critical Illness Cover | You’re diagnosed with a serious illness | Lump sum | Covering medical costs, debt, or income gaps |
| Income Protection | You’re off work due to illness or injury | Monthly income | Keeping up with bills and living costs |
Think of it like this:
- Life insurance is there to protect your family if something happens to you.
- Critical illness is there to help you financially if you get a serious illness.
- Income protection is there to keep money coming in if you’re too ill to work.
Final Thoughts
You don’t necessarily need all three types of cover—but you do need the right cover for your situation.
Start by asking yourself:
- If I couldn’t work for 6 months, how would I pay the bills?
- If I became seriously ill, what financial impact would that have?
- If I died tomorrow, who would be financially affected?
If these questions raise concerns, it might be time to review your protection.
We can help you work out what’s relevant, what’s not, and what cover makes sense for your situation and budget.
Get in touch for a no-obligation chat—we’re happy to help.
