Income Protection Insurance: What Counts?

Income protection insurance is a policy that provides financial support if you're unable to work due to injury or illness. It pays out a portion of your income, typically between 50% and 70% of your pre-tax earnings, to help cover essential expenses such as mortgage payments, rent, and bills. This type of insurance is designed to provide a safety net for individuals who might struggle to manage their finances if they experience a loss of income due to unforeseen circumstances. It is particularly relevant for self-employed individuals or those without sufficient sick pay or savings to cover an extended period of absence from work.

Income protection insurance covers most illnesses and injuries that stop you from working

Income protection insurance is a type of personal insurance that provides regular monthly payments if you have to stop working due to an illness or injury. This type of insurance covers most illnesses and injuries that prevent you from working, offering financial support to help you focus on your recovery. The monthly payments ensure a continued income stream to pay bills and maintain your lifestyle while you are unable to work.

The specific illnesses and injuries covered by income protection insurance vary depending on the insurance provider and the policy's definition of partial or total disability. It is important to carefully review the policy's terms and conditions, exclusions, and definitions to understand the extent of the coverage.

Income protection insurance typically pays out a percentage of your pre-disability income, usually between 50% and 75%. The payments are made regularly, helping you manage your financial commitments and maintain your standard of living during the covered period.

When applying for income protection insurance, you can choose the percentage of your income you want to cover, up to the specified limit. Additionally, you will need to select a "wait period" and a "payment period." The wait period is the time between making a claim and receiving the first payment, while the payment period is the duration for which you will receive the monthly payments.

Income protection insurance is designed to provide financial support and peace of mind during difficult times. By covering most illnesses and injuries that prevent you from working, it ensures that you can focus on your recovery while still meeting your financial obligations.

It pays out a percentage of your income before tax, usually between 50% and 70%

Income protection insurance is a long-term insurance policy that ensures you continue to receive a regular income if you are unable to work due to injury or illness. It is not the same as critical illness insurance, which pays out a one-off lump sum if you have a specific serious illness.

Income protection insurance covers most illnesses and injuries that prevent you from working in the short or long term. It does not pay out if you are made redundant. The policy covers you until you have recovered or until your retirement, death, the end of your policy, or the end of the limited claim period on your policy, whichever is sooner.

Income protection insurance pays out a percentage of your income before tax, usually between 50% and 70%. This is a percentage of your gross salary, and all payments are free of income tax. You can sometimes get a policy that pays out a higher percentage of one portion of your salary and less on anything above that. The amount you are paid out depends on your annual earnings in the 12 months prior to your illness or injury.

The percentage of your income that is paid out depends on the type of policy you choose. An indemnity value policy is a percentage of your salary when you make a claim. If your salary has decreased since you bought the policy, you will get a smaller monthly insurance payment. An agreed value policy is a percentage of an agreed amount when you sign up for the policy. These are generally more expensive but can be useful if your income changes from year to year. Since 31 March 2020, insurers can no longer offer agreed value policies to new customers.

The amount you pay for income protection insurance depends on your policy and individual circumstances. Factors that affect the amount you pay include how much of your income is covered, when you want your policy to end, how long you want to wait before payments are made, and the amount of time each claim will be paid for. The longer you wait for payments to be made, the lower your policy premium will be.

It can be claimed as many times as needed while the policy lasts

Income protection insurance is a policy that ensures you receive a regular income if you are unable to work due to injury or illness. It is also known as permanent health insurance. This type of insurance can be claimed as many times as needed while the policy lasts.

The income protection insurance policy covers most illnesses and injuries that prevent you from working in the short or long term. However, it does not pay out if you are made redundant. The policy replaces a portion of your income, typically between 50% and 70% of your gross monthly income before tax, and all payments are tax-free. The policy continues until you recover or until retirement, death, the end of the policy term, or the end of the limited claim period on your policy, whichever is sooner.

There is usually a pre-agreed waiting period, also known as a 'deferred' period, before the payments start. The most common waiting periods are 4, 13, 26 weeks, and a year. The longer the waiting period, the lower the monthly premiums.

The cost of income protection insurance depends on several factors, including your age, health, job, monthly outgoings, debts, marital status, and lifestyle. It is recommended that you have enough savings to cover at least three months' worth of living expenses, but income protection insurance can provide additional security if you are unable to work for a more extended period.

Income protection insurance is particularly important for self-employed individuals, as they do not have the same benefits as employees, such as sick leave or redundancy pay. It can also be beneficial for employed individuals who only have statutory sick pay (SSP) to rely on.

It is not the same as critical illness insurance, which pays out a one-off lump sum

Income protection insurance is a type of insurance that provides financial support in the form of regular payments if you are unable to work due to illness or injury. It is designed to replace a portion of your lost income, usually between 50-70% of your pre-tax income, and can be claimed multiple times as long as the policy is active. This type of insurance is especially important for those who are self-employed, have dependents, or have debts such as a mortgage.

Critical illness insurance, on the other hand, is a different type of cover. While income protection insurance provides regular payments until you can return to work, critical illness insurance pays out a one-off lump sum if you are diagnosed with a specific serious illness covered by your policy. This lump-sum payment can be used to cover various expenses related to your illness, including medical costs, everyday living expenses, and other financial needs. Critical illness insurance provides financial support during recovery from a critical illness, ensuring that you can focus on your health rather than financial worries.

The distinction between income protection insurance and critical illness insurance lies primarily in the payment structure and the purpose of the coverage. Income protection insurance provides regular payments to replace lost income due to any illness or injury, while critical illness insurance pays a one-off lump sum specifically for critical illnesses. This distinction is important because it determines how the insurance benefits can be utilised by the policyholder.

Income protection insurance typically covers a wide range of illnesses and injuries, both short-term and long-term, depending on the policy's definition of incapacity. It is designed to provide financial support until the policyholder can return to work or until the policy ends, whichever comes sooner. This type of insurance ensures that individuals can maintain their income and continue to pay their bills and expenses during their recovery.

In contrast, critical illness insurance is designed to provide financial assistance specifically for critical illnesses, which are typically defined as serious, life-threatening, or qualifying illnesses or conditions. The lump-sum payment from critical illness insurance can be used at the policyholder's discretion to cover various expenses related to their illness. This can include medical costs not covered by health insurance, everyday living expenses such as rent or mortgage payments, and other financial needs that may arise during their recovery.

In summary, while both types of insurance provide financial protection, income protection insurance focuses on replacing lost income due to any illness or injury, while critical illness insurance provides a one-off payment specifically for critical illnesses, giving policyholders flexibility to use the funds as needed during their recovery.

It is also not the same as Payment Protection Insurance (PPI), which covers specific debts

Income protection insurance is a type of insurance that pays out a portion of your income if you are unable to work due to injury or illness. It is designed to protect your income and help pay the bills while you focus on recovery. It is not the same as Payment Protection Insurance (PPI), which is designed to cover specific debts in the event that the borrower is unable to work due to illness, accident, death, or unemployment.

PPI, also known as credit insurance or loan repayment insurance, is an insurance product that enables consumers to ensure the repayment of credit. This can include situations where the borrower dies, becomes ill or disabled, loses their job, or faces other circumstances that prevent them from earning an income to service the debt. PPI was often sold by banks and credit providers as an add-on to loans or overdraft products. It typically covers payments for a finite period, usually 12 months, and the benefit amount varies depending on the type of debt. For loans or mortgages, the benefit amount may be the entire monthly payment, while for credit cards, it is typically the minimum monthly payment.

In contrast, income protection insurance is not specific to a debt but covers any income. It replaces a portion of the insured person's income, usually between 50% and 70%, if they are unable to work due to illness or injury. It continues to pay out until the person can return to work or until retirement, death, or the end of the policy term, whichever comes first. Income protection insurance can be claimed multiple times while the policy is active.

While both types of insurance provide financial protection, they differ in their scope and purpose. PPI is designed to cover specific debts, while income protection insurance provides a replacement income during periods of illness or injury. Income protection insurance also has a broader range of coverage, as it is not tied to a specific debt and can be claimed multiple times.

In summary, while both income protection insurance and PPI offer financial safeguards, they serve different purposes. Income protection insurance provides a regular income during periods of illness or injury, while PPI is designed to cover specific debts in the event that the borrower is unable to make repayments.

Frequently asked questions