Income Protection

What is income protection insurance?

Income protection insurance (IP) is a type of insurance that replaces some of your income for a specified length of time in the eventuality you are not able to work. This could be because of sickness or following an accident, and in some cases redundancy.

There are several different types of income protection, for example, you can choose between short term income protection, which typically provides cover for between six and 12 months, and long-term income protection, which covers you in the event of you being unable to work. We would always recommend that you compare income protection insurance to make sure you have the right cover for your lifestyle and your circumstances.

Accident and sickness:

This insurance provides financial support if you're unable to work due to illness or injury. It's ideal for those seeking coverage for health-related work absences without the need for unemployment protection

Accident, sickness and unemployment (ASU):

This covers loss of income due to illness, injury, or involuntary unemployment. This option is suitable for individuals seeking comprehensive protection against a range of income-disrupting scenarios.

Redundancy protection:

Redundancy insurance is a tax-free benefit that helps pay the bills should you lose your job. Also known as unemployment protection insurance, it takes away those financial worries and enables you to concentrate on finding a new position.

Guaranteed income protection:

Offers fixed premiums and coverage terms, ensuring consistent benefits and costs over time. Ideal for those who prefer stability and predictability in their insurance planning.

Reviewable income protection:

Allows for periodic reassessment of coverage terms and premiums, adapting to changing circumstances. This is a flexible option for individuals whose careers or health may change significantly over time.

Index-linked income protection:

Adjusts the benefits in line with inflation to maintain the real value of the coverage over time. This is particularly beneficial for long-term plans, safeguarding against the eroding effects of inflation.

How does income protection work?

Generally, you can obtain a policy that insures approximately 50-70% of your monthly income before taxes for a set duration. This policy activates if you're unable to work due to illness or injury for a lengthy period. Some types of income protection policies also include coverage if you lose your job involuntarily (except in cases of voluntary redundancy).

A claim will typically start after a set period of time that you are signed off work (this is called a 'deferred' period) and lasts either for a fixed payout period (typically 1, 2 or 5 years), until you can work again, or until retirement or death. There's usually a deferred period (the waiting time before the policy pays out) before the benefits kick in. Common deferred periods are 4 weeks, 13 weeks, 26 weeks, or one year. The longer the deferred period, the lower your monthly premium tends to be.

What affects my income protection policy?

As with other forms of insurance, such as car and home insurance, the cost of policies differs depending on a number of factors, such as:

• Age: Generally, the younger you are when you take out a policy, the lower the premiums, as older individuals are seen as higher risk.
• Health and Medical History: Your current health status and medical history play a significant role; pre-existing conditions may increase premiums.
• Occupation: The nature of your job and associated risks are crucial factors – high-risk occupations typically lead to higher premiums.
• Lifestyle Choices: Habits like smoking or participating in extreme sports can increase your premiums due to the increased risk of injury or illness
• Level of Coverage: The percentage of your salary you wish to cover and the policy's overall value directly affect the cost.
• Policy Terms: The length of the policy and the deferred period (the waiting time before the policy pays out) also influence the premium amount.
• Inflation Protection: Opting for index-linked protection, which adjusts payouts in line with inflation, may increase the cost.
• Existing Insurance Impact: Other insurance policies you have could lead to discounts, adjust coverage needs, and influence premiums and terms of your income protection policy based on your overall risk and coverage overlap.

In general, the lower the cover, the lower the monthly premiums. When comparing income protection policies, you’ll be asked to choose between:

• accident and sickness protection only
• unemployment protection only
• comprehensive income protection, which covers both

What our experts say about Income protection

“Note that, in the event of a successful claim, there might be a deferred or ‘wait’ period before the initial payment is made. This can be from day one, one month or to up to a year, generally people will align this waiting period with any sick pay that they would receive from their employer.”

How do I know what level of cover I need?

Income protection insurance replaces part of your income if you become unable to work because you’re ill, injured, or made redundant. You can choose from three main levels of cover, which pay out based on your situation:

• Own Occupation: This is in the eventuality you can’t do your specific job. It can be the right choice if, for example, your job depends on you being physically active and an accident leaves you unable to walk.
• Suited occupation: you can’t do your own job or a similar one that suits your qualifications and experience.
• Any occupation: you’re too ill to do any kind of work.

Do you already have income protection insurance?

It’s a good idea to review your income protection yearly in case your circumstances have changed; i.e. your mortgage or rent payments may have increased / decreased meaning you might not have the right level of cover.

Do I need income protection insurance

Without Income Protection insurance, there are other ways to pay the bills such as accessing an occupational sick pay scheme or Statutory Sick Pay (SSP), applying for disability benefits or using your savings. Most people in the UK are eligible for up to 28 weeks’ statutory sick pay, funded by the government, if they are too ill to work.

However, as of March 2024, Statutory Sick Pay is currently £109.40(1) per week for up to 28 weeks, which is not always enough to cover household and living costs. Moreover, not all employers offer a sick pay scheme, and even the maximum benefits often do not match a claimant’s full salary. To work out whether you need income protection or not, workout if you would be able to afford your outgoings without a salary and on the statutory sick pay funded by the government. While this would be hard  for anyone, it can be especially challenging for those with dependents. 

(1)https://www.acas.org.uk/checking-sick-pay/statutory-sick-pay-ssp

What are the Benefits of Income protection

The benefits of having income protection include:

• Protect your mortgage payments: Secure your home by covering mortgage payments, ensuring stability even if you're unable to work.
• Protect your loan payments: Safeguard against defaulting on loans, keeping your credit score intact during periods of illness or injury.
• The ability to pay bills: Continue meeting essential expenses like utility bills, council tax, and groceries, maintaining your household's normalcy.
• Peace of Mind for Dependents: Ensure dependents are well-cared for, providing financial stability and preserving your standards of living, in times when you're unable to work.
• Up to 70% Salary Replacement: Receive a substantial portion of your income, up to 70%, directly into your bank account, mitigating financial strain.
• Preservation of Savings: Avoid depleting your hard-earned savings, keeping your future financial plans intact.

What do I need to get an income protection quote?

When you compare Income Protection insurance with ActiveQuote you will be asked a short series of questions, starting with whether you would like to protect your income, mortgage, loan or credit repayments or other outgoings. You will also be asked if you want the policy to run for a fixed number of years or until you retire, and what your expected retirement age will be.

You will also need to list your gross income and any employer benefits and choose the amount you would like the policy to pay each month in the event of a successful claim, as well as filling in details including your name, date of birth, postcode and whether you smoke.

Income protection Insurance FAQs

FAQ: How long do I have to wait before the policy will pay out?

The deferred period before an income protection policy pays out, often referred to as the 'deferred' period, varies depending on the policy you choose. This is a crucial aspect to consider when selecting an income protection plan. The deferred period can range from as little as a few weeks to several months, and common options include:

• 1 day
• 4 weeks (1 month)
• 13 weeks (approximately 3 months)
• 26 weeks (6 months)
• 52 weeks (1 year)

FAQ: How much will I get if you make a claim

The amount you'll receive from an income protection claim depends primarily on the terms of your policy. Typically, income protection insurance is designed to replace a portion of your salary if you're unable to work due to illness or injury. Here's how it generally works:

• Percentage of Your Income: Most policies cover around 50-70% of your pre-tax salary. This percentage is predetermined when you take out the policy, but you choose a monetary amount that suits your needs.
• Policy Limits: There might be a cap or upper limit on the monthly payout, which is specified in your policy details.
• Tax Considerations: The payouts from income protection policies are usually tax-free, but it's important to check the specific terms of your policy for clarification.
• Adjustments Over Time: Some policies have provisions for payments to increase with inflation or at a fixed rate annually, ensuring that the benefit maintains its value over time.

FAQ: How will the insurer assess your job

When assessing your job for an income protection policy, insurers consider several key factors to determine the level of risk associated with your occupation. This assessment impacts both your eligibility for coverage and the premium you'll pay.

• Nature of Your Work: The physical and mental demands of your job are evaluated. High-risk occupations, like construction work, might attract higher premiums due to the increased risk of injury.
• Work Environment: Factors like working at heights, exposure to hazardous materials, or operating heavy machinery can influence risk assessments.
• Job Stability: Consistent employment history and job stability can be favourable in an insurer's assessment, as they indicate a lower risk of unemployment.
• Income Level: This will determine the amount of coverage you'll need. Higher incomes might require higher premiums due to the larger benefit payouts
• Office-based vs. Manual Work: Generally, office-based roles might be considered lower risk compared to manual labour jobs, potentially resulting in lower premiums.

FAQ: How much income protection cover do I need?

Everyone's circumstances are different, and the amount of income protection you might need will depend on a number of factors. We suggest speaking with one of our brokers/experts to get a clear understanding.

Some of the things to consider are:

• Your essential monthly expenses: mortgage or rent payments, utility bills, groceries, loan repayments, and any other regular outgoings. This helps in understanding the minimum amount you'd need in the eventuality you couldn’t work
• Current Income: Consider what percentage of your current income you would need to maintain a reasonable standard of living.
• Other Financial Obligations: Factor in any debts or ongoing financial commitments.
• Savings and/or Other Income: Consider any savings or additional sources of income you might have
• Employer Benefits: If your employer offers sick pay, understand the terms and duration.
• Family Needs: Consider the needs of your dependents and any future plans that might require financial support.
• Cost of Premiums: Balance your need for coverage with what you can afford to pay for the premium.

How do I buy income protection?

The best way to make sure you’re getting the right policy for you is to compare income protection insurance from a number of providers. We are one of the UK’s leading comparison sites and we also partner with Gocompare, MoneySuperMarket  and MoneySavingExpert to bring our customers the best cover at the right price.

When you compare Income Protection insurance with ActiveQuote you will be asked a short series of questions, starting with whether you would like to protect your income, mortgage, loan or credit repayments or other outgoings. You will also be asked if you want the policy to run for a fixed number of years or until you retire, and what your expected retirement age will be.

You will also need to list your gross income and any employer benefits and choose the amount you would like the policy to pay each month in the event of a successful claim, as well as filling in details including your name, date of birth, postcode and whether you smoke.

Why use a broker to compare income protection quotes?

In addition to providing quote comparisons online, we offer free, impartial specialist advice over the phone when needed. We are an independent and unbiased insurance broker and work with a panel of leading insurers so we will always provide you with the best quote for you. Moreover, contrary to popular belief, using a broker is almost always cheaper than going direct to an insurance company

• View more than 50 quotes online
• Compare the UK’s leading insurers
• Tailor your quotes online with live price updates
• Expertise and knowledge
• Tailored recommendation
• Cost effective
• Assistance with application and claims
• Ongoing support

Income Protection insurance providers we work with:

• Aegon
• AIG
• Aviva
• British Friendly
• Cirencester
• Exeter
• Holloway
• L&G
• LV=
• Royal London
• Shepherds
• Vitality
• Zurich

Best of all, we’ll let you know if it’s ever more convenient for you to switch providers and how you can do that! We monitor income protection insurance, so you don’t need too.