Income protection, critical illness or life cover: which risk are you actually insuring?
Three policies, three different events. The population odds of each before retirement, what each policy pays and when, why long absence is the risk most households are least covered for, and how sick pay and savings set the deferred period.
One lever among many. Optimising your plan shows every lever, which ones apply to you and how they interact.
Protection is sold as a category and bought as a muddle. The three main policies insure three different events with very different odds, and most households hold them in roughly the reverse order of how likely each event is. Start from the event, not the product.
The three events and their odds
On UK population data, a 30-year-old non-smoking man planning to retire at 67 has about a 41% chance of at least one spell of two months or more off work through illness or injury before then, a 19% chance of a serious illness of the kind critical-illness policies define, and a 14% chance of dying, and a 59% chance that at least one of the three happens. The risk reality calculator shows the figures for your own age, sex, smoking status and retirement age, and the page explains why insurers’ own tools, run on underwritten lives, come out lower. The order is the point: long absence is by far the most likely, death the least, and life cover is the policy people most often already hold, usually through work.
What each policy actually pays
Income protection pays a monthly income, tax-free from a personal policy, while you cannot work through illness or injury, after a chosen deferred period, until you recover, reach the policy’s end age or a fixed term expires. It is capped at a share of your earnings, typically 50–65%, and pays for as long as the condition lasts, which is what makes it the household’s most valuable cover and its most expensive. Critical-illness cover pays a single lump sum on diagnosis of a condition on the policy’s list: cancer accounts for most claims, then heart attack and stroke, whether or not you can work. Life cover pays a lump sum on death, and nothing before. Mortgage payment protection insurance and the “waiver of premium” on other policies are narrower cousins, not substitutes.
How much, and the deferred period
Life cover sizes from what your death would cost the people who depend on you: the DIME method (debts, income replacement, mortgage, education) net of the death-in-service benefit (often 4× salary) that many employers provide. Income protection sizes from your essential outgoings, and its deferred period from how long your employer’s sick pay, Statutory Sick Pay and savings already carry those outgoings: the income protection calculator counts the months and marks the deferred periods your own resources reach, because paying for cover you could self-insure is the commonest way to make a policy unaffordable. Critical-illness sums are the loosest: a year or two of income, or the mortgage, is the usual anchor. Whatever you buy, write life policies in trust so the payout sits outside your estate and reaches the family without probate.
What the plan shows
Hundred Summers records the policies you hold on the Protection tab and then does the thing brochures cannot: it applies the event to your actual plan. The survivor what-if removes one partner’s income and pays in the life cover; the income-protection shock stops earnings for a year and shows whether essentials are funded. The answer to “is it worth the premium?” is whatever those runs show, and for most working households with a mortgage the long-absence run is the one that fails without cover.
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