income protection insurance Compare quotes to find the best insurance policy for you
Income protection insurance, also known as permanent health insurance, provides a regular income if you become unable to work due to illness or injury. It’s designed to replace a portion of your salary and helps cover essential expenses like bills, mortgage payments, and everyday costs while you recover or adjust to a new situation.
Here’s a more detailed explanation:
How it works:
Income protection policies pay a monthly benefit, usually a percentage of your former income, if you are unable to work due to illness or injury.
What it covers:
The coverage typically extends until you return to work, retire, the policy expires, or the claim period ends, whichever comes first.
Benefits:
It can help you manage your finances while you focus on your recovery or adapt to a new work situation. It can also provide access to specialist rehabilitation services.
Who it’s for:
While it’s not essential, it can be a valuable financial safety net, especially for those who are self-employed or have a high-earning potential.
Key considerations:
Income protection policies have various options for benefit amounts, claim periods, and other features. It’s important to carefully evaluate your needs and consider the type of coverage that best fits your circumstances
Understanding income protection insurance in the UK
Income protection insurance, also known as permanent health insurance, acts as a crucial financial safety net in the United Kingdom for individuals facing the risk of being unable to work due to illness or injury. It provides a regular, tax-free monthly income to help cover essential living costs and maintain financial stability during challenging times.
What is covered and how does it work?
Income protection policies typically cover a wide range of illnesses and injuries that prevent you from carrying out your usual work duties. This can include both physical health conditions, such as broken bones or serious illnesses like cancer, and mental health conditions, like depression and anxiety. Payments usually begin after a pre-agreed waiting period, also called a deferred period, which can range from four weeks to a year or even two years. The length of the deferred period you choose will influence the cost of your premiums – the longer the waiting period, the lower the premium.
The monthly payments received from an income protection policy are designed to replace a portion of your lost income, typically between 50% and 70% of your pre-tax earnings. This amount is usually calculated to be roughly equivalent to your net take-home pay, considering that the payouts themselves are generally tax-free. The funds can be used to cover various expenses, including mortgage or rent payments, household bills, loan repayments, and other daily living costs.
Types of income protection
There are different types of income protection available to suit varying needs and budgets:
Short-term income protection: These policies offer coverage for a fixed period, usually between six months and two years, though some may extend to five years. They are often cheaper than long-term options and can be a good choice for those needing a temporary financial buffer.
Long-term income protection: This provides more comprehensive coverage, with payouts potentially continuing until you are fit enough to return to work or reach your retirement age. It is sometimes referred to as permanent health insurance.
Accident and sickness cover: This type of policy focuses on protecting your income specifically in cases of illness or injury, excluding unemployment due to other reasons.
Accident, sickness, and unemployment (ASU) cover: This offers broader protection, including coverage for involuntary redundancy in addition to illness and injury.
Key considerations when choosing a policy
Several factors can influence the cost and suitability of an income protection policy:
Occupation: Higher-risk jobs are likely to incur higher premiums due to the increased probability of accidents or injuries.
Age: Premiums tend to increase with age, as the likelihood of needing to make a claim is higher for older individuals.
Health and lifestyle: Pre-existing medical conditions, smoking status, and participation in risky hobbies can all affect premiums.
Desired level of cover: Opting to cover a larger percentage of your income or choosing a shorter deferred period will generally lead to higher premiums.
Length of cover: Long-term policies are more expensive than short-term ones.
Definition of incapacity: This defines what constitutes an inability to work. ‘Own occupation’ is the most comprehensive and expensive, meaning you’re covered if you can’t do your specific job. ‘Suited occupation’ covers you if you can’t do your job or a role suited to your skills and experience. ‘Any occupation’ or ‘work tasks’ is the broadest but hardest to claim on, only paying out if you can’t perform basic work tasks in any role.
Exclusions to be aware of
It’s essential to carefully examine the policy terms and conditions to understand any exclusions. Common exclusions can include:
Pre-existing medical conditions (though some insurers may offer cover with additional premiums or exclusions)
Certain specific medical conditions
Injuries resulting from high-risk sports or activities
Disabilities arising from drug or alcohol abuse
Self-inflicted injuries
Unemployment for reasons other than accident or illness, such as voluntary redundancy or being fired (unless you have unemployment cover)
Claiming on income protection insurance
The process for making a claim typically involves contacting your insurer as soon as you are unable to work, providing personal and policy details, and submitting a claims form along with medical evidence and proof of earnings. Once the claim is approved, payments will commence after the deferred period has ended.
Income protection for the self-employed
Self-employed individuals in the UK do not benefit from statutory sick pay and may find income protection particularly important. Policies are available that calculate monthly payments based on average earnings, typically using pre-tax profits over the previous financial year. It’s crucial to note that income protection will not cover lost income due to factors like losing clients or projects, as it is solely for illness or injury.
In summary
Income protection insurance in the UK offers a valuable financial safety net for individuals and families facing the prospect of being unable to work due to illness or injury. Understanding the different types of cover, their costs, inclusions, and exclusions is key to selecting a policy that aligns with your specific needs and provides peace of mind during potentially challenging circumstances. Comparing multiple quotes and seeking professional financial advice can further help in making an informed decision about the right income protection cover for you.
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