Income Protection

If you couldn't work due to a serious illness, how would you manage? Could you survive on sick pay or from savings? It may be worth considering income protection?


What is income protection insurance?

Income protection insurance (sometimes called permanent health insurance or long-term disability insurance) is a long-term insurance policy designed to support you if you can't work because you're ill or injured.

  • It replaces part of your income if you can't work for a while because you're ill or disabled.
  • It pays out until you can start working again or the end of the policy term whichever is sooner.
  • There's a waiting period before the payments start. You generally set payments to start after your sick pay ends, or after any other insurance stops covering you. The longer this period, the lower the premiums.

It's not the same as critical illness insurance, which pays out a one-off lump sum. Income protection insurance pays a monthly figure which is a percentage of your gross salary  (you can decide how much - usually at a maximum of 50% salary), and you can claim as many times as you need to, while the policy lasts.

There are budget plans that may pay out for a maximum of 2 or 5 years over the term.


What does income protection insurance cover?

Speak to an adviser

With income protection insurance, everything depends on getting the right policy - so you'll probably want to speak to an experienced adviser.

It covers most illnesses that leave you unable to work - but whether that means'unable to work at your current job' (perhaps due to work-related stress) or 'unable to work at all' (perhaps due to a serious heart condition) depends on the type of policy you choose and the definition of incapacity in your policy.

There are three definitions of incapacity, which form the three basic levels of cover you can get.


What income protection insurance doesn't cover?

Usually your policy comes with a list of specific illnesses or situations it won't cover, called exclusions. These may include one or more of the following:

  • pre-existing medical conditions (any illness you already knew about when you bought the policy)
  • normal pregnancy
  • self-inflicted injury
  • disabilities or illnesses that are due to criminal acts
  • misuse of alcohol or drugs
  • disabilities or illnesses if you are involved in war, riots, invasion, or terrorism

If you have existing health problems or a dangerous job you might not be able to get cover at all.


Do you need income protection insurance?

It doesn't matter whether or not you have children or other dependants - if illness would mean you couldn't pay the bills, income protection should be a priority.

You're most likely to need it if you're self-employed or employed and you don't have sick pay to fall back on.

You probably don't need income protection insurance if…

  • You could get by on your sick pay - for example if you have an employee benefits package which gives you an income for six months or more, so you can keep paying the mortgage and other bills as long as you are not off work for too long. But consider how you will cope after the sick pay ends.
  • You have enough in savings to support yourself - remember that your savings may need to see you through a long period without being able to work.


Is income protection insurance good value for money?

Premiums are usually good value but the premium you actually pay is dependent on the level of cover, medical history and occupation. Usually income protection insurance covers a wide range of illnesses and situations and has the potential to pay out for many years.


Payment Protection Insurance is optional. There are other providers of Payment Protection Insurance and other products designed to protect you against loss of income.