Eenie Meenie Miney Mo – Which one should you choose?

Critical Illness Cover and Income Protection Insurance are two very different types of personal protection insurance with many people often asking which policy is best.

The truth is that it depends on a number of factors including your age, health especially,  wealth and the type of job you do to name just a few. People often think they are the same thing and although they both support you, they do work in significantly different ways.

Many Australians have both forms of insurance, ever wonder why? Below we explain what each policy is, how each policy differs, which policy is worth buying and should we say, why do you need both.

So, what is the difference between the two?

Simply, income protection provides a monthly benefit for as long as you remain temporarily disabled up to the maximum benefit limit, as specified in your policy. Trauma cover provides an early lump sum if you suffer from a condition specified in your cover policy.

So, let’s dig deeper…

What is Income Protection?

If you suddenly find yourself unable to work, having income protection cover means you will get a regular benefit payment which can help you with your expenses while you’re not earning your usual income. It can help ease the burden and give you peace of mind, particularly if you run out of sick and annual leave.

Here are a few features of Income Protection cover:

  • You can claim for income protection if you are unable to work either some or all of your usual
    You may need to provide ongoing proof of your inability to work and proof of income.
  • Income protection usually includes a ‘wait’ period – a specified amount of time you need to be off work before your payments start. Usually, you choose it yourself but sometimes insurer’s underwriters may set a wait period for you.
  • Your payments will stop when you return to work, or until you reach the end of your payment period, the length of which is set when you first take out your policy. Payment periods can vary from a couple of years, or up until the age of 65!

What is a Critical Illness Cover?

Trauma cover, on the other hand, will provide you with a single payment if you meet the definition as set out by the insurance company’s list of covered conditions. The lump-sum payment is designed to provide a financial boost when you need it most, easing the financial burden and enabling you to focus on recovery. What’s good about this is when a claim is paid, the insurer doesn’t stipulate how the money is spent.

Here are a few things to know about trauma cover:

  • If you have been diagnosed with a condition that meets the policy specifications, your trauma cover will be paid out regardless of whether you are still able to work or not.
  • There are no rules around what you can use the money for– it can be for whatever you like. A few of the things people use their Trauma cover for are to cover their income while they’re off work, to pay for treatment, or to renovate their home if the illness has caused mobility issues.
  • Trauma cover is usually set up as a ‘one-time’ cover – which means that once you’ve claimed it, it’s gone. There are options that allow you to buy the cover back or make repeat claims, but these usually need to be added when you take out your policy so it’s a good idea to talk to your adviser early about what will suit you best.

So, which is the best?

Whether you want one, the other or both will depend on your needs and budget, but it’s important to understand the benefits and limitations of both types of insurance coverage and how they might work together.

Trauma and income protection are both valuable types of insurance cover, but they do different things so it’s important not to consider them interchangeable. You will never know what’s around the corner, hence having both forms of insurance allow you to stop thinking about the ‘what ifs’.

This is why it’s best to talk to an adviser first. Getting help from an expert is always a good idea as they know the market – so they can match your profile and circumstances to the most suitable policies available. TALK TO US NOW!