Critical Illness Cover and Income Protection - Crunch

As a freelancer or contractor, you’ll have no sick pay (SSP) entitlement or employer-provided sickness benefits to fall back on if you’re sick. Your bills however will keep coming in –what happens if you fall ill and can’t work?

Income Protection for a monthly income One option is an income protection insurance that protects you from an unforeseen shortfall in income. The Income Protection policy is there to provide you with a replacement monthly income for a set period of time to cover in an accident or illness keeps you from working.

See the details about Income Protection insurance in our Knowledge article.

State Benefits - what will you receive as a freelancer or contractor from the government

When unable to work due to illness, freelancers may be able to claim Employment Support Allowance (ESA) from the government, which is currently up to £73.10 per week if you’re aged over 25. You can claim this for 13 weeks, then there may be further entitlements.

However, if you're a limited company contractor the government basically expect you to pay yourself SSP for 28 weeks, but you may qualify for ESA after this period. Before April 2014, small companies could recover some or all of SSP payments from the government, but this is now not possible.  It's also possible that those with their own limited company could continue to draw a salary or dividends from their company.

Do you need Income Protection?

You may not if:

  • If you have substantial savings or enough earnings from another member of the family to cover your annual outgoings.
  • You can take early retirement (perhaps on ill-health grounds)
  • A regular monthly income would be more appropriate (any lump sum received from a Critical Illness payment may be used for anything, e.g. to pay off your mortgage, buy medical treatment, adapt your home).

Critical Illness Cover for a tax-free lump sum

Critical Illness Cover is perhaps one of the most valuable covers you can have, albeit also the most expensive on comparison to other covers; this is because it is going to pay you out a tax free lump sum should the very worst happen to you – it is almost a life assurance policy that will pay to you if you suffer a critical illness but do not die.

So many critical illnesses - such as cancer, heart attack, stroke – used to mean a death sentence, but now with modern medicine doctors and nurses are able to keep you alive for many years, possibly well into your later years. However all these extra years become very stressful and worrying if you no longer have an income or you still have large financial obligations such as a mortgage or business loan. This is where a critical illness policy becomes your saviour.

When critical illness means lifelong impairment which may make work completely impossible or much less possible than before Critical insurance provides you with a lump sum of money if you’re diagnosed with certain illnesses or disabilities (often heart attack or stroke, loss of arms or legs, some types of cancer, organ transplants, and diseases like Multiple Sclerosis, Alzheimers, or Parkinsons).

Yes, the cover will pay out for genuine claims

Back in 2018, extensive research by Legal & General (L&G) found that only one in 10 UK adults had a form of Critical Illness Cover, and only 7% owned an income protection product.30% said they had no back-up plan should they fall critically ill, suffer a disability, lose their salary, or pass away, and 41% expected to be able to rely on statutory sick pay in their hour of need - which currently stands at £94.25 a week.

Considering their research also suggests that one in two people will get cancer at some point in their lives, the swathes of people without any income protection or Critical Illness Cover could find themselves in dire financial straits at the worst possible time. It is, of course, important to add that advancements in treatments mean that 50% of cancer patients are predicted to survive 10 years or more after diagnosis.

With 93% of L&G’s Critical Illness claims being paid out in 2018, totalling just over £195m, and claimants ranging from 21 years of age to 70, it would seem only sensible for people to be covering themselves. This is why Critical Illness insurance has quickly become one of the most well known and trusted protection policies in the world.

Here's what you need to check in the policy before you sign up:

  • What conditions it’ll pay out for and at what stage of the condition (these vary between insurers) – read the small print carefully
  • How much it’ll pay out
  • Will it only pay out a lump sum or is a monthly income an option?
  • Will it cover spouses and children?
  • Will you need overseas cover if you spend time abroad or plan to retire overseas?
  • Occupations seen as ‘risky’ can increase premiums drastically.

You need to fully disclose the extent of your medical history when applying for the insurance (as this is a common reason for claim rejection).

CORONA VIRUS UPDATE MARCH 2020 – many insurance companies are either withdrawing temporarily from offering cover or increasing rates. A big factor in this decision is their current inability to perform medical checks and/or apply to a GP Practice for copy medical reports. You should speak to your adviser as soon as possible if you would like to consider taking out one of these policies.

Talk to the experts

We’ve partnered with Seico to offer advice on all types of Life Cover including Critical Illness Cover. You can call them on 0330 335 3399 and they’ll be able to offer individual advice on the best type of cover for you.

If you would like to learn more about the life cover offered by Crunch, be sure to check out our life cover page for all the information you need.

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Ross Bramble
Content Executive
Updated on
April 9, 2021

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