Income Protection v Serious Illness Cover

Both Income Protection & Serious Illness policies are designed to provide a policyholder with financial protection in the event of illness or injury.

However, there are some key differences between the two types of policies:

Benefit Payable:

• A Serious Illness Policy will pay a single lump sum amount in the event of a successful claim

• Income Protection pays out a regular monthly benefit until the individual is fit to return to work. It will continue to be paid until the Policy Term ceases

Link to Employment / Amount of Benefit:

• A Serious Illness policy can be taken out by anybody, whether they are in employment or not. There is no limit to the amount of cover that can be in a Serious Illness policy, subject to Financial Underwriting by the Insurance Company and obviously subject to the cost of the premium.

• Income Protection can only be taken out to protect ‘Earned Income’. Cover is limited to 75% of Earned Income (from Salary or Self-Employed sources) less Social Welfare.

Tax:

• Premiums to Serious Illness policies are not tax-deductible, but the pay-out itself is tax-free

• Premiums paid to an Income Protection policy are tax deductible at the marginal rate. However, any pay-outs are also taxable at the marginal rate.

Illnesses Covered:

• Serious Illness policies have a very specific, specified range of illnesses that are covered under the policy. One needs to be very careful though with Serious Illness cover as not all illnesses are covered and policy conditions should be read thoroughly from the outset.

• Income Protection, on the other hand, will generally cover any illness once it prevents the policyholder from working (and by extension earning) and once it has not been excluded at policy inception (e.g. for pre-existing conditions)