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Protection Insurance: Life, Income and Critical Illness

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Checked against GOV.UK, legislation.gov.uk, MoneyHelper and one other official source. Edited by Steven Butler.

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If something happened to you, would your family keep up with the mortgage and the bills? This section covers life insurance, income protection, critical illness cover, over-50s plans and equity release: what each one does and the traps to watch for. It is general information, not financial advice.

Key points
  • ✓Life insurance pays out either a lump sum or regular payments on your death, giving your dependants financial support after you have gone.
  • ✓Income protection provides regular payments that replace part of your income if you are unable to work due to illness or an accident.
  • ✓Critical illness insurance pays out a one-off lump sum if you have a specific serious illness.
  • ✓Over 50s life insurance plans have no medical check, and you might pay in more money over time than your family will get back.
  • ✓If you are a homeowner aged 55 and over, equity release may allow you to borrow money from your home without selling. You must speak to a specialist equity release adviser first.

The main types of protection

Life insurance: how a policy pays out on your death, and the level, decreasing and increasing kinds of cover.

Income protection: provides regular payments that replace part of your income if you are unable to work due to illness or an accident.

Critical illness cover: pays out a one-off lump sum if you have a specific serious illness.

Over-50s life insurance: a fixed payout when you die, with no medical check required.

Equity release: for homeowners aged 55 and over, a tax-free lump sum or regular income, and the risks to understand first.

How to think about what you need

It depends on who relies on you and what you would struggle to pay for. Questions to start with:

  • Who depends on your income? A partner, children, anyone you care for
  • What would need paying for if you died or couldn't work? Mortgage, rent, bills, childcare
  • What would you fall back on? Savings, a partner's income, and Statutory Sick Pay, which is at most £123.25 a week for up to 28 weeks
  • What you already have: employee packages often include death in service benefits that provide an amount of cover linked to your salary
Employees who are off sick are usually moved onto Statutory Sick Pay within six months, and it stops after 28 weeks. See our guide on sick pay for what your employer must provide.

Getting advice you can trust

Where to get guidance, and how to check a firm:

  • MoneyHelper (moneyhelper.org.uk), free, impartial guidance from the Money and Pensions Service, a public body sponsored by the Department for Work and Pensions
  • The Financial Services Register at register.fca.org.uk, a public record of firms, individuals and other bodies that are, or have been, authorised by the FCA or the PRA
  • For equity release, you must speak to a specialist equity release adviser first, and you will need your own solicitor
This page and the guides in this section are general information, not financial advice. We don't recommend particular products or providers. Always check your adviser is registered with the Financial Conduct Authority (FCA) by using the FCA Firm Checker.

Where to go next

Insurance
Life Insurance
Term vs whole-of-life, how much cover, and writing it in trust.
Income Protection
Replace part of your income if you can't work through illness.
Critical Illness Cover
A lump sum on diagnosis of a serious named condition.
Over-50s Life Insurance
Guaranteed acceptance plans, and their pros and cons.

Frequently asked questions

What's the difference between life insurance and income protection?

Life insurance pays out either a lump sum or regular payments on your death, giving your dependants financial support after you have gone. Income protection provides regular payments that replace part of your income if you are unable to work due to illness or an accident.

Do I really need protection insurance?

It depends on who relies on you and what would happen to them financially if you died or couldn't work. Statutory Sick Pay is at most £123.25 a week for up to 28 weeks. MoneyHelper says you might not need critical illness cover if you have enough savings to cover ongoing expenses such as bills, rent or mortgage payments as well as the extra costs of a serious illness or disability, or you already have some cover as part of your employer's employee benefits scheme.

Where can I get free, impartial advice about insurance?

MoneyHelper (moneyhelper.org.uk) is free, impartial guidance from the Money and Pensions Service, a public body sponsored by the Department for Work and Pensions, and a good starting point. The Financial Services Register at register.fca.org.uk is a public record of firms, individuals and other bodies that are, or have been, authorised by the FCA or the PRA. For equity release, you must speak to a specialist equity release adviser before you go ahead, and you will need your own solicitor to check the details.

Related guides

Equity Release
Borrowing money from your home in later life, and the risks.
Claim Refused
What to do when an insurer refuses a claim, and how to escalate to the Ombudsman.

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Know Your Rights UK. "Protection Insurance: Life, Income and Critical Illness." Know Your Rights UK, https://www.knowyourrightsuk.com/insurance