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.