As a contractor or self-employed professional, your income is your most valuable asset. But what would happen if illness or injury stopped you from working? Without the safety net of employer sick pay, you need to consider how to protect yourself. Two popular options are Critical Illness Cover and Income Protection Insurance, but which is right for you?

In this guide, we’ll compare the differences, costs, and key questions you should ask when deciding whether you need one or both types of cover.

What is Critical Illness Cover for Contractors?

Critical Illness Cover pays out a tax-free lump sum if you’re diagnosed with a serious medical condition listed in the policy. Common conditions include cancer, heart attacks, and strokes.

For contractors and the self-employed, this lump sum can help you:

• Clear a mortgage or personal debts
• Cover private medical treatment
• Protect your family’s lifestyle while you recover

Key difference: Critical Illness Cover is not designed to replace a regular income. Instead, it gives you financial breathing space after a life-changing diagnosis.

What is Income Protection for the Self-Employed?

Income Protection Insurance replaces a portion of your income if illness or injury prevents you from working. Typically, it pays up to 60% of your pre-tax earnings as a monthly benefit.

For contractors and freelancers, this can act like a personal sick pay policy. Payments continue until you’re well enough to return to work, or until the policy ends (depending on your cover).

Key difference: Income Protection focuses on ongoing monthly support to cover everyday bills and maintain financial stability.

Critical Illness vs Income Protection: How Do Costs Compare?

In general, Income Protection is more expensive than Critical Illness Cover. This is because the insurer could pay benefits for several months or even years if you’re unable to work.

Critical Illness Cover usually costs less, as it only pays out once on diagnosis of a specified condition.

Premiums for both types of contractor insurance depend on:

• Your age
• Health and lifestyle
• Occupation (higher-risk trades often pay more)
• Length and level of cover

Some contractors choose a blend: a lump sum from Critical Illness Cover plus an affordable level of Income Protection. This combination offers flexibility and a safety net for different scenarios.

Do I Need Critical Illness Cover or Income Protection?

Every contractor’s situation is different. To help decide, ask yourself:

1. Could you survive financially without your income?
   If not, Income Protection may be essential.
2. Do you have savings or assets to rely on?
   If you could manage for a year from savings, Critical Illness Cover may fill the bigger gaps.
3. Would you prefer a lump sum or an ongoing income?
   Lump sums are ideal for clearing debts, while monthly benefits maintain your lifestyle.
4. How long could you afford to be off work?
   Contractors often face unpredictable income. Income Protection helps smooth long absences, while Critical Illness is there for major diagnoses.
5. Would both give you peace of mind?
   Many self-employed professionals use both policies to cover all bases.

The Bottom Line for Contractors and the Self-Employed

Both Critical Illness Cover and Income Protection play valuable roles in a financial safety net.

• Critical Illness Cover = one-off lump sum on diagnosis of a serious condition.
• Income Protection = regular monthly payments if illness or injury prevents you from working.

For many contractors, the right solution is a tailored mix. At Broadbench, we specialise in helping contractors and the self-employed design tax-efficient protection strategies that fit their needs and budgets.

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