Your money: Invalidity insurance at a glance

Insurance: in the sixth part of our series, we look at how to protect income in case of illness

Health insurance is a catch-all term for a range of policies that insure against different risks. The obvious potential for confusion is compounded by the financial services industry's love of jargon. But the basics are simple.

Income replacement insurance pays a tax-free income, usually until you reach retirement age, if you cannot work because of ill-health. The policies are also called permanent health, income-protection insurance, or long-term disability insurance.

Critical illness insurance pays a cash lump sum, rather than an income. It pays out if you are seriously ill, the policies cover a range of specified illnesses such as cancer, heart attacks and strokes. Some critical illness policies also have an investment element and may therefore pay you a lump sum after a number of years if you do not make a claim.

Private medical insurance covers you primarily for private hospital treatment in the event of illness. We will look at this type of cover later in the series.