What is Income protection insurance?
Income protection insurance provides a replacement income if you cannot work due to illness or injury. It can assist you in covering essential household expenses, such as your mortgage, utilities, and groceries, allowing you to concentrate on your recovery.
Do I need income protection insurance?
If you or your family depend on your income to manage regular household expenses, an income protection policy can help maintain your lifestyle in case you’re unable to work. Even with savings, you could deplete them quickly without a steady salary, leaving you vulnerable for future emergencies.
If you’re self-employed or employed and only have statutory sick pay (SSP) as a fallback, income protection can provide crucial financial security.
However, you might not need income protection if:
- You already have it as part of your workplace benefits.
- You have illness coverage through another insurance policy or your mortgage.
If you’re unsure whether income protection is right for you, feel free to schedule a call with me so we can discuss your options.
How much is income protection insurance?
The cost of income protection insurance can vary quite significantly due to a few different factors, including:
- Your age – the older you are when you purchase the policy, the higher your premiums may be, as the risk of illness increases with age.
- Your job – jobs that are deemed riskier typically lead to higher premiums. For instance, builders and mechanics may pay more than accountants or office workers.
- The length of cover – short-term policies are generally less expensive than long-term ones.
- Your lifestyle – smoking or having pre-existing health conditions can increase your risk of severe illness, potentially leading to more claims and higher premiums.
- The deferred period – the longer you can wait to start receiving your replacement income, the lower your premium is likely to be.
- Your ability to do alternative work – policies that cover you specifically for not being able to perform your current job tend to cost more than those that allow for alternative work.
What does income protection insurance cover?
Income protection policies generally cover a wide range of illnesses and injuries that prevent you from working. These include:
- Musculoskeletal issues, such as back pain or fractures. According to the Association of British Insurers (ABI), back and neck pain were the leading causes of income protection claims in 2022.
- Mental health disorders, including depression, stress, and anxiety.
- Serious illnesses like cancer, heart disease, and stroke.
Although these are common reasons for making a claim, you’ll only receive a payout if you meet your provider’s specific criteria for being unable to work, often referred to as the “definition of incapacity.”
Income protection typically pays out until your benefit period concludes, you return to work, retire, pass away, or the policy expires—whichever comes first. You can usually make multiple claims as long as the policy remains active.
What isn’t covered by income protection insurance?
Your income protection policy may exclude certain illnesses or injuries, such as self-harm. Additionally, you might not be covered for pre-existing medical conditions or hereditary illnesses, or you may face higher premiums; your provider should clarify these details.
Some policies also specify that you cannot claim if your illness or injury allows you to perform other types of work, even if it means leaving your current job.
Income protection insurance only covers you if you’re unable to work due to a medical reason. You won’t be able to make a claim if you resign, retire, or are made redundant. If you’re concerned about job loss, you might consider an accident, sickness, and unemployment policy instead.
