What is income protection insurance?

Income protection insurance is a type of policy that provides you with a regular income if you are unable to work due to illness or injury. This type of insurance can help you to maintain your standard of living and keep up with essential expenses, such as mortgage payments and rent, while you are unable to work.

How does income protection insurance work?

Income protection insurance:

If you become unable to work due to illness or injury and meet the policy’s requirements, the insurance company will begin paying you a regular income, typically on a monthly basis. The amount of the income benefit will be based on the amount of coverage you purchased and any limitations or exclusions that may apply.

Income protection insurance is typically purchased as an individual policy, but it may also be available through your employer as part of a group insurance plan. It is important to carefully review the terms and conditions of any policy you are considering, as coverage and benefits can vary greatly between policies.

When do you need income protection insurance?

If you become sick or have an accident that prevents you from working, you may assume that your employer will continue to provide you with some income. However, this is not always the case. Many employers will only provide employees with Statutory Sick Pay for a limited period of time, often six months or less. After this, you may not receive any income from your employer if you are unable to work. It’s important to check with your employer to see what they will provide for you if you are off sick. The loss of an income can be particularly challenging, especially if you have limited savings and need to pay essential bills such as rent or mortgage payments and utilities. This can be especially difficult for self-employed individuals who do not have access to sick pay.

Who doesn’t need income protection insurance?

You might not need income protection insurance if:

There are a few different options you may consider if you are unable to work due to illness or an accident and do not have an income:

  • If you have a employee benefits package that provides you with an income for a longer period of time, such as 12 months or more, you may be able to rely on this to get by.
  • If you are eligible for government benefits, you may be able to use these to cover your expenses.
  • If you have enough savings, you may be able to use these to support yourself, although it’s important to be aware that your savings may need to last for an extended period of time.
  • You may consider taking early retirement, depending on your circumstances and age.
  • If you have a partner or family members who can support you financially, you may be able to rely on their income to cover your expenses.

How much does income protection insurance cost?

The amount you pay each month in premiums will depend on the policy and your circumstances.

Income protection policies cover a wide range of illnesses, conditions and situations. So it’s important to compare what different insurers can offer you.

The cost is affected by:

  • your age
  • your occupation
  • whether you smoke or have smoked
  • the percentage of income you’d like to cover
  • the waiting (or ‘deferred’) period until the policy pays out
  • the range of illnesses and injuries covered
  • health – your current health, weight and family medical history.

The cost will also depend on whether you pay:

  • a standard premium, which the insurer can increase over time, or
  • a guaranteed premium, which remains fixed for as long as you have the policy.

Guaranteed premiums can cost slightly more in the short-term, But many people like the security of knowing what they’ll be paying in future.

How do I buy income protection insurance?

Insurance premiums can vary significantly between different insurers, and it’s important to shop around and do your research to find the best policy for your needs. An independent financial adviser or specialist broker can help you to understand the details of the various policies available and ensure that you choose the right one. These professionals may charge a fee for their services or receive commission from insurance companies. If you have been declined insurance in the past due to a medical condition or other factors, there are also specialist brokers and insurers that may be able to help you find coverage.

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