What is Income Protection Insurance

What is income protectionIncome protection, as it’s name suggests is a fantastic way to protect your employed or self-employed income should you be unable to work due to sickness or injury – Not to be confused with Accident, Sickness and Unemployment (ASU) insurance, Income Protection offers a far greater level of protection and we’ll explain why below. We have listed below many of the questions people ask and hope to answer these in a jargon free way to give you a better understanding of the benefits of this much under utilised insurance.

If something happened to you, if you were injured at work, had a stroke, heart attack or other serious illness, or were injured playing a sport, driving your car or crossing a road, how long would you be able to maintain paying your rent or mortgage, car finance or other household bills?

How does Income Protection Insurance work?

As with most insurance products, you pay a premium each month to the insurance (protection) company and, if you are unable to work due to ill health or injury, Income Protection would pay a set monthly amount into your bank account up to a percentage of your normal monthly income until you are able to return to work. In a nutshell – Income protection, also known as Permanent Health insurance, is a long term insurance policy designed to ensure you receive some income should you be unable to work due to illness or injury and depending on how it is initially set up it can pay monthly sums out until you retire.

  • It replaces your income – It will pay out a percentage of your normal monthly income
  • It will continue to pay out – Until you retire, return to work, die or the policy expires
  • It will cover most illnesses that stop you returning to work

Did you know, that according to The Association Of British Insurers – 98% of protection claims presented were paid out


How is Income Protection different to ASU?

ASU (Accident, Sickness and Unemployment) policies are whats known as General Insurance policies, Income Protection Insurance on the other hand is whats known as a pure protection policy and as such offers far greater protection and a higher level of cover. For instance, if you were to make a claim on an ASU policy, it would typically run for a maximum of 12 months and then stop, regardless of whether you are ready to back to work or not. The insurer you hold the ASU policy with can increase your premiums, typically inline with inflation and also if a claim is made (for example, like car insurance if you make a claim) , they could also cancel the policy if a number of claims are made.

  • Income Protection is controlled by you:
    • The provider cannot cancel the policy once it is live
    • The provider cannot alter the monthly premiums if guaranteed premiums are set up from the outset
    • The provider cannot cancel the policy due to multiple claims being made 

With the added peace of mind provided by Income Protection Insurance, we would recommend this type of cover over an ASU policy.

How much of my income can be covered and how many claims will Income Protection pay out for?

Income Protection will usually cover up to 65% of your normal monthly income to allow you to maintain a reasonable standard of living.

The cover will pay out on as many valid claims made! For example, if you were to break your back and needed 18 months off work, then a week after returning to work you broke your leg (let’s hope no one is that unfortunate!), you could claim on the insurance again to replace some of your income whilst your arm mended.

Income Protection (IP) is not PPI!

Income Protection should not be confused with PPI (Payment Protection insurance), PPI is (or was!) an insurance that relates to a single product, it is rarely sold nowadays due to miss selling and miss representation of the product many years ago (I am certain you would have heard of PPI!), such as a credit card or loan. IP, or Income Protection is there to protect against the loss of your income, it should enable you to maintain loan payments depending on the policy but is not linked to one single loan or credit card.


Did you know you can have your monthly benefit payments index linked to avoid the affects of inflation eroding your benefit?


Do I need Income Protection?

That depends on your circumstances, if you are employed or self employed the chances are that yes, you do! however it isn’t right for everyone and below are a few examples where this type of cover may not best suited:

  • About to retire or can take early retirement – If you are nearing retirement age or if anything happened you could take early retirement than income protection may not be the most suitable protection
  • Have sufficient savings – If you have large amounts of savings and losing your income would not affect you financially, if you would be able to maintain your bills and standard of living if you were unable to work then Income Protection probably isn’t for you. Although income protection would mean you shouldn’t have to dig into your hard earned savings should something happen.
  • You would receive ongoing support from your employer – If you would receive long term sick pay, for example full pay for 12 months it may not be required, however it may be useful to look at setting up a policy in this instance with a 12 month waiting period in the even that you were unable to return to work after your sick pay ends.
  • You can live of state benefits – If you can survive financially on state benefits then maybe it isn’t right for you, although it is likely state benefits would cover your main household bills.
  • You can life on Statutory sick pay if you are off ill – As of July 2019 statutory sick pay is ££94.25 per week, can you really life reasonably and pay your bills on £94.25 per week?

If you fit into one of the above then it may be that Income Protection isn’t right for you – if you don’t, have a think about how long you and your family can survive financially should you be unable to work due to illness or injury – What the true cost of not having the right protection in place would be!

Income Protection can provide stepped benefits – So what are stepped benefits?

If you have an employer that will pay full salary sick pay for a period of time (say 3 months) and half pay for another 3 months the benefit can be ‘stepped’ inline with your sick pay to ensure you are covered when your employers sick pay steps down a level – The income protection payments would step up!

I like the sound of Income Protection, but what does it cost – Is Income Protection expensive?

Income ProtectionAs with anything, cost is relative to the individual and the benefit gained. The premiums would typically cost more than an ASU policy but the benefit is greater.

Are there ways to reduce the monthly premiums if I believe cover until retirement isn’t required?

There are ways to reduce the cost of Income Protection, for instance rather than have the insurance payout until you retire, you could opt for a short term plan, say 2 years (which is still longer than most ASU plans) – Which means the cover will payout for 2 years after a successful claim is made. 2 years Income Protection cover is better than having nothing in place.

Most employed people will get sick pay for a number of months if they are unable to work, with Income Protection there is usually a waiting period before the policy will start to pay out (for instance 30 days) – The longer the waiting period, the lower the monthly premiums will be.

Whilst altering the term that a policy will pay out for and the waiting period could reduce the cost of a policy (if required), policy costs will vary depending on a number of other factors such as:

  • your age and the job you do
  • whether you smoke or have previously smoked – Typically if you have not smoked for 12 months you will be considered as a non smoker
  • the percentage of income you’d like to cover – usually up to 65%
  • the range of illnesses and injuries covered – Most illness and injuries are covered but if you have a pre-existing condition, this could impact on the cover provided
  • your current health – your current state of health, your weight, your family medical history

Setting up Income Protection can seem tricky and complicated, we help to simply everything by doing the work for you and making sure you have the right cover to fit your needs.

How to get a quote for Income Protection Insurance?

Apply for income protection insuranceGetting a quote is easy, as whole of market insurance brokers, after talking through your needs and requirements we search the whole market, do the leg work for you and provide you with a no obligation quote. Simply call 0161 705 0653 or submit your details on the enquiry form on this page and we will call you back.

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