A Guide To Income Protection vs Critical Illness Cover

Finding the right personal protection insurance can be a lengthy and difficult process. Here at WIS Business Protection, we want to educate you about relevant life insurance policies, focusing on Income Protection Insurance and Critical Illness Cover. Below, we take a closer look at these personal protection insurances, including their advantages and disadvantages, and hopefully guide you to picking the policy that suits you best.

What is Income Protection Insurance?

Income protection insurance (IPI), also referred to as sick pay insurance or permanent health insurance covers your income when you’re unable to work as a result of illness or injury. This insurance provides you with peace of mind by offering long-term income security – this way, you don’t have to worry about limited statutory sick pay running out and you can prioritise your recovery.

The price of this policy will vary as a result of a number of factors. This includes the type of job that you have, your health as well as how quick you want the deferred period to be (this means how fast you would like the policy to be paid out).

For more information about personal income protection, you can check out our Income Protection Guide.

What Are The Advantages of IPI?

The advantages of an IPI insurance policy include:

  • This policy covers any incapacity – you don’t have to meet specific conditions.
  • These plans can pay out until you reach retirement age.
  • IPI plans can be individually tailored to suit your personal situation, which can help to reduce the cost of the policy.
  • You can make multiple claims of IPI even if the same reason is provided for each claim.
  •  The monthly benefit from the policy is tax-free.

What Are The Disadvantages of IPI?

Here are some potential disadvantages of this policy:

  •  It can be expensive as it’s based upon your health status and your job type.
  • Existing medical conditions may be excluded.
  • The available options are confusing so may require discussion with a specialist.
  • You can only insure up to a maximum of 60% of your income for a personal plan and up to 80% of your income for an executive income protection plan.

What is Critical Illness Cover?

Critical Illness Cover (CIC) works by paying out a lump sum directly to you when you have been diagnosed with a critical illness. This is only applicable if the critical illness that you have been diagnosed with meets the insurance company’s list of covered critical illnesses. This lump sum payment works to provide a financial boost that enables you to prioritise your recovery.

Most insurance companies offer critical illness cover for between 50 and 180+ illnesses. Despite some bad press around this policy, around 95% of CIC claims are successfully paid out. For the best results of successful payment of CIC, we would strongly recommend contacting a specialist to maximise your chances of receiving payment.

For more information about our relevant life insurance services, you can visit our website to contact us.

What Are The Advantages Of CIC?

These are the advantages of a CIC policy:

  • The payout is tax-free.
  • The lump sum paid can be put towards reducing debts, the payment of private treatment or replacing your income.
  • Less serious conditions can still claim partial payments.
  • Some CIC policies will provide a payment if your child becomes critically ill.

What Are The Disadvantages Of CIC?

These are some disadvantages:

  • Your critical illness must meet the insurer’s definition of critical illness.
  • The many different available options can be confusing and require specialist advice.
  •  It’s expensive in some cases.

Income Protection vs Critical Illness Cover

Choosing between these two personal protection insurance policies can be difficult as they both offer advantages and potential disadvantages. Consider your situation and decide which policy would benefit you the most. Consider if it will provide peace of mind so that you can recover in the event of illness or injury.

Join 3 million UK workers who have income protection insurance today. Our best advice is to contact one of our specialists to discuss executive income protection and find the best personal protection insurance policy for you. You can contact one of our specialists via our contact page.

Can Relevant Life Policies Be Used For Shareholder Protection?

It’s important for businesses to plan for future potential risks. This includes taking out relevant life policies in the case of an employee’s death. Some shareholders may wonder if they can use relevant life policies for shareholder protection, but there are limitations to what they cover, including the shareholder’s assets in the business. At WIS Business Protection, we specialise in finding the very best cover for your business. So we take a look at whether relevant life policies can be used for shareholder protection and what other options there are available to protect your business.

What is Relevant Life Insurance?

Relevant life insurance is a policy that provides financial provisions for an employee’s beneficiaries in the case of their death. Premiums are paid by the business. Many companies use these policies as they are tax-deductible and the employee doesn’t have to pay tax. You can take out a relevant life plan as any employee, director or charity. However, it’s important to check the tax implications with a professional.

An employee’s financial dependants receive relevant life insurance if they pass away and the policy doesn’t cover the business. Taking out Relevant life insurance is a tax-efficient way for an employee to offer life insurance benefits to employees and attract potential new hires. You can insure up to 25 times an employee’s salary, bonus and benefits.

Can Relevant Life Policies Be Used For Shareholder Protection?

In general, relevant life cover is not appropriate for shareholders who want to ensure their equity in the business. UK law sets out that the primary purpose of a relevant life plan cannot be tax avoidance and they must meet a range of conditions. If the payment could be made to the company it would be an easy way for businesses to avoid tax. Furthermore, certain types of businesses are not eligible for these policies, including members of an LLP. There are several circumstances where relevant life cover is not appropriate and shareholder protection policies would be more effective.

The Terms of Relevant Life Policies

There are a number of terms that restrict what you can use a relevant life policy for. You cannot use a relevant life policy for employees who are over the age of 75. Also, there can’t be a surrender value. You can’t use a relevant life plan for key person purposes either and can take out specialist insurance policies for this. You cannot pay benefits to a limited company so the business won’t receive any compensation. Thus, it all goes to the employees family. Relevant Life Insurance usually doesn’t have a critical illness option. This is another reason why some directors choose to take out shareholder protection instead.

Shareholder Protection

Shareholder protection insurance protects your company after the death or incapacitation of a shareholder. Many businesses don’t have the funds available to purchase the deceased’s share of the business if they die suddenly. Which is why shareholder protection policies can be a better choice for directors and owners. If a company wishes to fully cover itself in the case of a key stakeholder passing, it may choose to take out a shareholder protection policy for one or all of the shareholders. Shareholder protection is a policy to ensure businesses can continue to run smoothly if a director or key employee dies or is critically ill and can’t work.

Planning for Future Succession

Many businesses have employees, directors and shareholders who are essential to business operations and if they were to become critically ill or die it would have major consequences for the business. It’s crucial that businesses put a succession plan in place for shareholders. This will ensure no disputes over the allocation of shares after they pass. A smooth transition is preferable for the business, employees and the value of the company. So, having everything in writing is fundamental. When a shareholder dies, there should be an agreement in place to determine where to distribute shares. Otherwise, this can cause difficulty and complications.

Ask The Experts

At WIS Business Protection, we offer a wide range of business protection insurance options. These include relevant life insurance, shareholder protection and executive income protection for property owners, landlords, and employers. We help individuals and businesses find the best business insurance deals for them through specialist advisory services and support. Our experienced team are here to help so get in touch with WIS Business Protection today to protect your company and learn more about how to use relevant life policies for shareholder protection.