What Is Income Protection Insurance?
How Does Income Protection Insurance Work?
ncome protection insurance:
- provides regular payments that replace part of your income if you’re unable to work due to illness or an accident
- pays out until you can start working again – or until you retire, die or reach the end of the policy term – whichever is sooner
- typically pays out between 50% and 65% of your income if you’re unable to work
- covers most illnesses that leave you unable to work – either in the short or long term (depending on the type of policy and its definition of incapacity)
- can be claimed as many times as you need to while the policy lasts.
There’s often a pre-agreed waiting (‘deferred’) period before the payments start. The most common waiting periods are 4, 13, 26 weeks and a year. The longer you wait, the lower the monthly premiums.
It’s not the same as critical illness insurance, which pays out a one-off lump sum if you have a specific serious
When do you need income protection insurance?
When we’re unable to work due to illness or an accident, you might assume that your employer will continue to give you some level of income.
In reality, however, employees are usually moved onto Statutory Sick Pay within six months.
Very few employers support their staff for more than a year if they’re off sick from work. Check what your employer will provide for you if you’re off sick.
Depending on the level of savings you have, the loss of an income can soon leave you unable to pay essential household bills, such as mortgage/rent and utilities.
It can be particularly difficult if you’re self-employed and so have no sick pay to fall back on
How Much Does Income Protection Insurance Cost?
The amount you pay each month in premiums will depend on the policy and your circumstances.
Income protection policies cover a wide range of illnesses, conditions and situations. So it’s important to compare what different insurers can offer you.
The cost is affected by:
- your age
- your occupation
- whether you smoke or have smoked
- the percentage of income you’d like to cover
- the waiting (or ‘deferred’) period until the policy pays out
- the range of illnesses and injuries covered
- health – your current health, weight and family medical history.
The cost will also depend on whether you pay:
- a standard premium, which the insurer can increase over time, or
- a guaranteed premium, which remains fixed for as long as you have the policy.