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Income protection v. critical illness cover: What’s the difference and can you ever be denied cover?

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SPECIAL REPORT: HEALTH

We explain the difference between income protection and critical illness coverage so that you can decide whether it is something you need and whether you may find it harder than others to get cover

There are just over 4.3 million self-employed workers in the UK. Whether you are a sole trader or limited company director it’s important to understand that critical illness and income protection insurance are not the same thing. Critical illness cover pays out a lump sum if you are diagnosed with a serious illness, while income protection pays out a regular income if you are unable to work due to illness or injury. In some cases, you may consider getting both types of cover to protect yourself financially if you are a freelancer.

As of the second quarter of 2023, there were approximately 783,000 self-employed workers in the construction industry, the most of any industry. Due to the physical demands of construction, workers in this sector are arguably more at risk for injury and therefore more likely to take time off of work to recover. The same could be true for sickness and critical illness.

Others in office or desk-based work could be in a stronger position to work through sickness, illness or even an injury. This is likely to include those in professional, scientific and technical roles which as of June this year numbered around 598,000, making it the second-most common industry for the self-employed.

According to a survey by Drewberry Insurance in 2023, only 9.4% of self-employed workers in the UK have income protection insurance. This is significantly lower than the percentage of employed workers who have income protection insurance, which is 25%.

So, should the industry you work in determine whether you should get income or critical illness cover? It all depends on how much you have to lose if you cannot bring in money and for how long. Having cover could also make a mortgage application go smoother and swiftly.

There are a number of reasons why so few freelancers have income protection insurance. One reason is that they may not be aware of the need for it. Another is income protection insurance can be expensive even if you have no previous medical conditions. The premiums are based on factors such as age, health, and occupation. Freelancers may find the premiums to be too high.

Here are some tips for choosing income protection insurance for freelancers:

  • Get quotes from multiple insurers.
  • Compare the premiums, benefits, and terms of different policies.
  • Make sure the policy covers all of your needs, such as the length of time you want to be covered and the amount of income you want to replace.
  • Consider getting a policy that includes a waiver of premium. This means that you will not have to pay premiums if you are unable to work due to illness or injury.

You should also talk to an insurance advisor about your specific circumstances. They may know providers that are specialised in certain types of policies, such as self-employed and those with existing or previous health conditions.

For example, in general, income protection insurance should cover cancer if it prevents you from working. This means that you must be unable to do your own job, or any other job that you are qualified for, due to cancer. You must also be able to provide medical evidence to support your claim. This could be tricky if you have a desk-based job rather than a physical one, so it is important to ask a broker and insurer for examples of situations where they would consider you would be able to work (i.e. between chemo treatments). This may determine for you if it is worth having if a pay-out would not look likely.

Critical illness cover: questions to ask before you sign

The amount of money you will receive from an insurer if you are diagnosed with a critical illness will vary depending on the policy. Most policies pay out a lump sum, while others pay out a monthly income.

However, there is usually a waiting period before you can make a claim on a critical illness policy. This is typically 14 days or 30 days. With this in mind, it is wise to create an income emergency fund to cover this period, but realistically more so you are not struggling financially at such a stressful time.

The terms and conditions of the policy will set out the specific circumstances in which you can make a claim. For example, some policies may only pay out if you are diagnosed with a critical illness within a certain period of time after taking out the policy.

If you make a claim on your critical illness policy, the insurer will usually require you to provide medical evidence of your diagnosis.

You should also ask for a waiver of premium, which means that you will not have to pay premiums if you are unable to work due to a critical illness.

Exclusions are conditions that are not covered by the policy. For example, some policies may exclude pre-existing conditions.

Some people may opt for total permanent disability (TPD) cover, which according to Drewberry triggers a payout if you become totally and permanently disabled.

However, not every insurer includes it as one of the critical illnesses that trigger a payout. For many providers, you must add it for an extra premium.

It is, therefore, worthwhile to take the time to read the terms and conditions of the policy carefully before you buy it to make sure that you are covered for the things that matter to you and that would be applicable to your type of work.

Key questions to ask an insurer before you take out a policy

  • What illnesses are covered?
  • Would my profession be covered?
  • How do you ro the underwriters determine whether I can work or not?
  • How much money will I receive if I am diagnosed with a critical illness?
  • How long would I have to wait for a payout? Is there a waiting period?
  • What are the terms and conditions of the policy?
  • What happens if I make a claim?
  • Is there a waiver of premium?
  • Are there any exclusions?

It is also important to shop around and compare different policies before you buy. You should also talk to your insurance advisor about your specific circumstances.

Do not be surprised if some insurers will not offer critical illness insurance to people who have already been treated for cancer, while others may only offer cover for certain types of cancer. That is why asking specific questions is so crucial when getting quotes or working through a broker.

Some insurers may also have a waiting period before you can make a claim, or they may require you to provide medical evidence that you are in remission.

Some critical illnesses covered by insurance (but not all policies or insurers are the same)

  • Heart attack
  • Stroke
  • Cancer
  • Kidney failure
  • Liver failure
  • Multiple sclerosis
  • Motor neurone disease
  • Permanent blindness
  • Permanent deafness
  • End-stage renal disease
  • Major organ transplant
Some work can be done from home or even with a laptop in bed, but when this is not the case, income protection or critical illness cover may be something you have to seriously consider/ Photo by Andrea Piacquadio via Pexels

Can you get covered as a freelancer if you have been treated for cancer?

If you have been diagnosed and treated for cancer in the past it is possible to be granted cover, however, it is likely to be more difficult and expensive. The terms of the policy may be more restrictive.

Do not be surprised if some insurers will not offer critical illness insurance to people who have already been treated for cancer, while others may only offer cover for certain types of cancer. That is why asking specific questions is so crucial when getting quotes or working through a broker.

Some insurers may also have a waiting period before you can make a claim, or they may require you to provide medical evidence that you are in remission.

Income protection is reportedly more difficult to get if you have been treated for cancer. Insurers will want to know how your cancer has affected your ability to work, and they may require you to have a medical examination. They may also offer cover for a shorter period of time, or they may only pay out a percentage of your income.

If you are a freelancer who has been treated for cancer, it is important to shop around and compare different policies before you buy. You should also talk to your insurance advisor about your specific circumstances.

More tips for freelancers who have been treated for cancer looking for insurance:

  • Get quotes from multiple insurers. Specialist ones may be your best option.
  • Be honest with an insurance broker and an insurer about your medical history so you get the cover you need in case of a claim.
  • Ask about the waiting period and any other restrictions on the policy.
  • Consider getting a policy that includes a waiver of premium. This means that you will not have to pay premiums if you are unable to work due to a critical illness.

Useful links

Compare Income Protection Insurance | money.co.uk

Average cost of critical illness cover UK » iam INSURED

Life Insurance for Self-Employed | Beagle Street

If you have a question related to this topic, please write to editor@freelanceinformer.com. The editorial team will aim to find an expert to provide some guidance by answering your question in our Freelancer’s Couch section. Reader identities will be kept anonymous.

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