Read our FAQs to learn more about how income protection can protect you against loss of income.
What is income protection insurance?
How does income protection work?
Do I need income protection insurance?
Why would I need income protection if I can get support from the state?
Is my benefit tax free?
How long can I claim for?
Do I get money back at the end of my cover if I haven’t claimed?
What is the maximum amount of cover?
What is the deferred period?
Will income protection pay out if I am made redundant?
Can I get income protection if I am self-employed?
Can I get income protection if I am unemployed?
What sort of claims do people make?
How does income protection insurance compare to payment protection insurance and mortgage payment protection insurance?
Am I eligible for income protection insurance?
What is income protection insurance?
Income protection insurance, also known as just income protection or permanent health insurance pays out a regular tax-free income in the event of ill health or injury if the policy holder is unable to work.
How does income protection work?
Income protection is designed to pay a regular monthly income to meet all your essential financial commitments if you find yourself unable to work through serious illness or injury.
The maximum level of protection will represent a proportion of your regular salary so to encourage claimants to return to work should they be fit and healthy again.
A pre-determined monthly benefit will be paid to you after your deferred period if your claim is successful.
Do I need income protection?
Although your income may have stopped, unfortunately your outgoings won’t, which is why income protection is vital in keeping your head above water.
If you became seriously ill or accidentally injured tomorrow and consequently unable to work, do you know how you would pay the bills which arrive next week? According to research carried out by ICM on behalf of the Guardian and Unum only 39% of people could rely on their savings and only 7% have income protection in place. Alarmingly this leaves over 50% of the population having to rely on their partner, family or other investments for support.
Income protection insurance can remove the financial strain you may place upon yourself or others if you were unable work due to sickness or injury.
Why would I need income protection if I can get support from the state?
Many people may believe that the state support will provide them with enough money each month to get by comfortably. This unfortunately is not the case.
Employment and Support Allowance (ESA) may be enough for you to get by; however you won’t be able to afford mortgage repayments, other living costs and the little luxuries you were previously accustomed to. The current allowance stands at just under £100 a week. Would this pay for your mortgage repayments and then leave you with enough money for food and other bills?
The guardian gave two families £100 to live off for a week – click here to see how they managed.
You may be entitled to support from your employer and should take this into consideration when looking at alternative income protection as this may change your needs regarding your income protection.
Is my benefit tax free?
Yes, the regular benefits paid out from income protection are tax-free.
How long can I claim for?
For as long as you are unable to work due to sickness or injury and before your policy ends, you can claim on your income protection insurance. This is unlike other protection policies which may only provide a replacement income for one to two years.
The policy will cease usually when you reach retirement age or whenever the pre-determined term in reached. The policy will also cease if you cancel or miss payments.
You income protection will also end if you recover and are no longer incapacitated, regardless of whether or not you return to work.
Do I get money back at the end of my cover if I haven’t claimed?
No, your policy has no cash in value at any time even if your policy terminates without you having made a claim.
Similar to car insurance, you are insuring against the risk of said event occurring, if it doesn’t you do not receive back any of the money you paid.
What is the maximum amount of cover?
The maximum amount of benefit you receive will be determined by your current earnings. This is usually a maximum of 50% of your salary or around £1500 a week, although this varies with insurer.
If you are a house person or work less than 16 hours a week, the maximum benefit you can receive is usually around £20,000 although again this can vary with insurer.
What is the deferred period?
The deferred period is the time between when you claim on your policy and the first benefit is paid.
Most people will not need their cover to pay out immediately as they would receive some support from their employer for a limited amount of time – usually a number of weeks. Therefore their income protection benefits can be deferred until these payments stop.
The longer the deferred period, the cheaper the income protection insurance will be. The longer you can wait, the more likely you may be to return to work, therefore reducing the risk to the insurer.
Will income protection pay out if I am made redundant?
No. Income Protection covers illness and accidental injury only. Redundancy cover will pay a benefit if you are made redundant.
To read more about redundancy cover click here.
Can I get income protection if I am self-employed?
Income protection is also available if you are self employed. The level of benefits you receive however are calculated differently than if you were employed.
Your earnings will be determined by your share of the annual pre-tax profits. So the total income from the business less any expenses from running that business.
- Self-employed for more than 36 months – your benefits will be based on your yearly earnings based on your average yearly pre-tax profit over 3 years prior to incapacity.
- Self employed for less than 36 months- your benefits will be based on your yearly earning based on your average yearly pre-tax profit during the period of self employment prior to incapacity.
Can I get income protection if I am unemployed?
You can get income protection even if you don’t have an income per se. If you are a house person, for example, your contribution to the family home is likely to have an affect on your household income if you are unable to carry on with your work.
There is normally a restriction on the level of benefits you receive, usually around £20,000 per year, although this varies with insurers.
What sort of claims do people make?
People make claims for a variety of reasons, for both physical and mental conditions. Some examples may include:
- Stress, depression.
- Musculoskeletal problems relating to bones and muscles – including back pain.
- Heart disease.
- Cancer.
- Accidental injuries – for example to the back or neck.
With all claims they must be unexpected. If you were aware of the possibility of developing a condition or a reoccurring injury your policy may not pay out. You must declare any past or existing conditions or injuries.
How does income protection insurance compare to payment protection insurance and mortgage payment protection insurance?
Income insurance is the most comprehensive of the 3 policies, whilst payment protection insurance and mortgage payment protection insurance provide similar levels of cover.
Payment protection insurance is designed to cover debt that is currently outstanding, such as a loan or overdraft. The benefit payments usually last for 12 or 24 months. It is not designed to replace an income or meet everyday living costs.
Mortgage payment protection insurance works in a similar way as payment protection, however it is designed to match the monthly mortgage repayments and can also include an extra 25% to cover other household bills.
Am I eligible for income protection insurance?
In order to qualify for an income protection policy cover you must usually satisfy the following criteria:
- Age between 18 and 64 years - whereby you are still working and earning an income. Insurers won’t provide cover beyond retirement age.
- Living and working in the UK – permanently living and in paid employment for at least 16 hours a week. Any less and you may qualify for unemployed income protection.
- Work is permanent – If you are in a temporary, causal or seasonal role you may not be able to apply for income protection.
- Been in employment for at least 6 months.
- Job is secure – you cannot apply for income protection if you are aware of any conditions which may affect your job security. For example, impending unemployment, job losses, company restructure or merger with another company.
- Maximum insured benefit – your monthly benefits must not exceed the insurer’s maximum proportion of your salary. Some insurers for example will only allow you to protect 50% of your annual salary.
- Medical conditions – your policy may not protect you against any accidents or sickness that occurred before you took out your cover and reoccurred during.