You never know what's around the corner, protect yourself and your family with income protection insurance.
Income protection insurance is a type of insurance policy designed to provide a replacement income if you can't work due to illness or injury.
Most employers offer sick pay to their staff, but this typically only lasts for around six months. After this period, you are only entitled to Statutory Sick Pay (SSP).
If you're self-employed or a company director - and you're not entitled to statutory sick pay - your business may only be able to continue if you can work.
An income protection insurance policy provides financial support to cover monthly outgoings when you cannot.
Income protection insurance provides a regular income to cover your living expenses while you're unable to work. Typically, you'll be able to get cover for up to 50-70% of lost earnings.
Here's how it works:
Income protection insurance brings several benefits, perhaps the most valuable being reassurance.
Unlike critical illness cover, which restricts you to a specific list of medical conditions, income protection insurance covers almost any illness or injury that stops you from working.
Successful income protection claims pay you a percentage of your monthly income until you are well enough to return to work or your policy term ends.
When you purchase income protection cover, you can choose for it to last a set number of years or until your anticipated retirement age.
Your income protection insurance policy will define what counts as an inability to work and how long your policy will continue to pay out.
There are three ways insurers define being unable to work. What you choose will affect your cover level and the cost of your policy.
Own occupation income protection policies cover your income until you are well enough to return to the role you held when you made your claim. It's the best level of cover as your insurer won't make you take a lesser or completely different role before you end your cover.
A suited occupation policy will cover you until you can return to a role that is identical or similarly suited to your skills. This may mean that your insurance provider will expect you to take a lesser role than the one you previously held.
If you hold any occupation policy, your insurance provider will end your cover if you are well enough to work. It can be something other than your previous job or anything you've done before. It's the least favourable level of income protection insurance.
Exclusions will vary between providers and policies. However, typically the following won't be covered:
You must be a permanent UK resident to take out income protection insurance.Some insurers will require you to be registered with a GP for two years before they allow you to take out income protection cover.
Every income protection policy has a waiting period in the beginning. During this waiting period, you may not make a claim.
The 'deferred period' is the waiting time between you claiming your income protection insurance and the policy paying out.
You can set the deferred period when you take out your income protection cover. The shorter the deferred period you choose, the higher your monthly premiums.
The price of your income protection insurance depends on several factors, including your:
Critical illness insurance pays you a tax-free lump sum if you contract an illness from a specific list on the policy. Depending on your level of cover, you may need more than the lump sum to support you for long.
Income protection can be used as a short-term fix, but it's often taken out to protect you from a long-term inability to work. You can even choose for it to cover you until retirement age, giving you security should you become unable to work.
There are several different types of income protection cover, each with its benefits and disadvantages. Compare income protection insurance types and see what's best for you.
Short-term IP covers if you cannot work for a short period due to sickness or injury. For example, if you broke your leg. Most policies last from 6 months to 2 years.
Long-term income protection covers you if you become severely ill and cannot work. For example, if you become permanently disabled.
You can also purchase a family income benefit life insurance policy that gives your beneficiaries a regular monthly income until the end of the term if you die, instead of a lump sum. This is another type of decreasing insurance.
This type of income protection considers that your salary should rise with inflation during your career. When you take out an index-linked policy, how much cover you have grows each year, aligned with inflation.
This type of cover considers your employer's sick pay policy and how long it lasts. If you claim, your policy will pay out a lower amount while your employer still pays you a higher percentage of your salary. If your employer reduces the percentage after a specific period, your income protection pay rises.
As with all insurance, the higher the value of your cover, the higher your premiums.
Most insurers allow you to insure 50% of your gross salary.Think about how much money you need every month to pay your mortgage and household bills while maintaining your standard of living.
Don't underestimate the level of cover you need to lower your premiums.
Depending on your policy, your income cover may come with a wide range of extra benefits that could help you throughout your insurance term. These could include:
