What Is The UK's Best Income Protection Insurance In 2024?
Read our 2024 Best Income Protection Insurance UK Guide, get expert regulated advice and compare online quotes from Aviva, Vitality and other top UK insurers...
To help you get to grips with the basics, we’ve put together a list of the top 15 questions Income Protection Insurance we’re most commonly asked by our clients.
We try to cover all bases, from the simple, such as “What is Income Protection?“, to discussing the benefits of Accident and Sickness Cover when compared to other personal insurance products.
This guide offers an explanation of this type of insurance, including how Income Protection is taxed and whether it’s worth getting cover to protect against illness and injury.
So for the answers to these frequently asked Income Protection questions, just click the links below.
Income Protection provides wage insurance against the risk of sickness or injury by paying a proportion of your earnings every month if you need to take time off work for health reasons, perhaps after an illness or injury.
Long-term Income Protection will pay out for as long as you need it if you can’t work on medical grounds, usually up until your pre-determined retirement age. You set this at the outset of the policy and this is typically referred to as the policy cease age.
Short-term Income Protection (see below), on the other hand, only provides cover for a maximum period of 12 or 24 months per claim and per condition. These short-term policies can also include unemployment insurance, providing cover for forced redundancy.
The extent of your coverage can vary depending on your individual circumstances and your insurer, which is why we’re here to help you find the best Income Protection for your circumstances.
There are many different terms that we hear being used to refer to Income Protection. However, not all of them mean the same thing and not all of them offer the same amount of protection. Commonly-used phrases include:
Although this sounds similar to Income Protection, it’s actually very different. Firstly, you don’t get an income from this type of policy, only a lump sum.
Secondly, Personal Accident Insurance policies have much looser rules surrounding their underwriting which allows providers to change the terms and conditions you signed up under, or cancel the policy entirely, with relative ease.
Personal Accident policies also tend to have an inferior definition on incapacity, such as suited occupation. This means that although you may be unable to do your job after an accident, the insurer has every right to ask you to do one that’s suited to your skillset – even if it pays less. That’s why Drewberry only recommends the own occupation definition of incapacity.
Income Protection is designed to protect a proportion of your monthly income so you have money available to pay all of your essential bills if you are unable to work due to medical reasons.
When you apply for Income Protection Insurance, you are given the option for your plan to pay out for a maximum period of 1, 2 or 5 years, or right up until retirement age (which is sometimes recommended to sufficiently cover all potential illnesses during employment).
When the Own Occupation definition of incapacity is used – which we strongly recommend – your plan would pay out for any medical condition that stops you from doing your own specific job. This could be anything from a bad back to cancer as long as it renders you medically unable to work.
There are a number of major differences between Income Protection and Payment Protection Insurance.
The first difference is that Payment Protection Insurance tends to only be short-term, providing you with cover for just a set period (generally a maximum of two years). If you have PPI and you’re off work for more than two years with a medical condition – perfectly possible if it’s something serious – then the policy will stop paying out and you’ll be left without cover.
Traditional Income Protection is medically underwritten at application and can offer a far more robust occupation definition when it comes to making a claim.
Income Protection provides the option for own occupation cover, which means the plan will pay out if you cannot undertake your specific job. Most Payment Protection policies, on the other hand, use an inferior definition, such as suited occupation or even activities of daily living.
Lastly, PPI insurers do not usually publish their payout rate (Income Protection insurers do), which makes it difficult to compare insurers or find out how good they are at honouring claims.
Income Protection Insurance cost will vary depending on a number of factors. Some of these you can change, such as the level of coverage you want, while others depend on your individual circumstances.
The biggest factor is how much you insure yourself for. Rather than looking for a policy that matches your income exactly, it may be better to think of your cover in terms of your outgoings if you want to cut down the cost of your premiums.
You can adjust the cost of your insurance premiums by negotiating your deferred period (how long you have to be incapacitated before you can make a claim), and your premium type. For instance, age-banded premiums tend to work out cheaper at the start, but they go up each year in line with your age.
You can also adjust the policy cease age with long-term Income Protection – bringing it down from what is often insurers’ default of 65 to 60 can make a massive difference towards lowering premiums, as the chance of you claiming in those last five years of the policy are much higher.
It’s important that you compare quotes from all of the the leading income protection insurers so you know that you are getting the best deal.
Generally there’s no tax on Income Protection benefits because as an individual you’ll have paid for it from post-tax income, so you’ll have already paid tax on the premiums.
The exception is if you’re self-employed and have a self-employed Income Protection policy or Executive Income Protection plan. In this instance you may be able to use your business to pay your premiums, generally out of pre-tax income as an allowable expense against corporation tax.
In general, the better option depends on your circumstances, but we normally recommend Accident and Sickness cover over Critical Illness Insurance.
When looking to cover your monthly outgoings Income Protection Insurance is considered more comprehensive than Critical Illness Insurance. Most Critical Illness Insurance usually covers between 40 and 50 medical conditions, while Income Protection covers any medical condition provided it keeps you from working.
Accident and Sickness Insurance pays you a monthly income if you can’t work, whereas Critical Illness Insurance pays out a lump sum just once. If you can’t work again, this may not be sufficient to last until retirement.
In some instances, we might recommend that you get coverage from both types of insurance. That way, your monthly expenditure will be covered and in the event that you develop a critical health condition you’ll also receive a one-off lump-sum payment, which could be used to make home modifications following a disability.
Feel free to read our guide to find out more about the difference between Income Protection and Critical Illness Insurance.
Accident and Sickness Insurance policies have been around for over 100 years and have an excellent record for paying claims.
UK insurers typically have high payout rates on Income Protection policies, 97.2% of all protection claims in 2015 were successful.
Check the successful claims rate over the past three years for the major players in the Income Protection market here.
In total, almost £500 million was paid out in claims last year and LV=, the UK’s largest friendly society, paid out close to £77 million in new claims in 2016. One insurer, Holloway Friendly, paid 98% of all valid claims it received last year.
To find out the claims payout rates for specific insurers or products, feel free to check out our page of insurer claims statistics or use our handy tool below to find out the payout rate for different insurers and products.
Statutory Sick Pay (SSP) can keep you covered for a short time if you need to take a break from work, but severe illnesses and injuries could take months or years to recover from.
If you need to take time off work to recover, your employer is legally required as of 2017 to pay SSP of £116.75 per week for up to 28 weeks. If you still aren’t ready to return to work after this period, you would have to move to ESA (see below).
Our 2015 Health & Protection Survey found that 58% of workers would receive no more than 3 months of employer sick pay. Worst of all, 24% of workers reported that they did not receive any sick pay from their employers at all.
Most Income Protection claims last a lot longer than the 28 weeks of SSP. LV=, for instance, showed in their 2016 Claim Statistics that their average claim lasted seven years, seven months.
This shows how drastic the difference is between the amount of cover you get from SSP and the cover you get from Illness & Injury Insurance.
The state does provide Employment and Support Allowance (ESA), but the amount paid can vary quite drastically depending on your age and the severity of your incapacity. Income Protection is more reliable and can cover more of your pre-disability income.
The current payment for ESA averages £84.80. As a result, many people would need to drastically change their lifestyle to stay within their new budget and may fall into significant financial hardship.
ESA can also be fairly difficult to obtain due to work capability assessments and clampdowns on benefits claimants, so in most cases Income Protection would be a more reliable solution.
You can sometimes include unemployment cover within traditional Income Protection Insurance plans, but this will depend on your circumstances. Many plans cover accidents and sickness only, so be sure you understand the type of Income Protection you’re buying.
Accident, Sickness & Unemployment cover, or ASU Insurance, is a form of Payment Protection. That will cover you for unemployment, but there’ll be strict conditions and the cover will only be short-term, as it’s unlikely that even if you claim for forced redundancy you’ll never be able to find work again.
Alternatively, you can ‘bolt on’ Unemployment Cover to Income Protection – but you need to check with your adviser about the ins and outs of this and whether it’s suitable for you. There are very few, if any, circumstances in which it would be suitable to buy Unemployment Insurance for the self-employed, for instance.
Although there is a large proportion of the self-employed workforce who either don’t know about it or don’t think they can get cover this is not the case.
Sole traders can cover a portion of their profits before tax and company directors can cover a portion of their salary and dividends combined.
One thing to note, however, before you think that your policy will be the same as any other is that because you are self employed, it can be very difficult to claim if you choose to include unemployment insurance.
If you are a sole trader, your policy can cover between 50% to 70% of your profit before tax (i.e. your revenue minus your costs but before tax). Sole traders would typically take out Self-Employed Protection, which has only slight differences compared to a typical policy.
If you’re a company director, Executive Protection might be the better option for you as this policy can be owned and paid for by your business.
Short-Term Income Protection covers illnesses and injuries that may keep you from work on a short-term basis. You receive monthly payouts from your policy to cover your necessities for a maximum of 12 to 24 months.
Short-term plans are a valid option, but we normally recommend Long-Term Protection to our clients. This is because you can never really be certain what’s around the corner and an illness that you thought might last only a few months might keep you out of work for several years.
The insurer LV= last year had claims averaging at a length of 7 years, which goes to show that serious medical conditions can keep people off work for a very long time. With only short-term coverage, you may find yourself facing financial difficulty should your health take a downward turn.
Naturally, whether you’re able to have long-term cover may come down to your budget/affordability. If this is the case, there are some ways to reduce the premium cost.
No, it is the same price if you come through us or go directly to an insurer. As the premium is the same, you can essentially use the expertise of our independent advisers for free, making sure you get the right policy from a reputable insurer.
Furthermore, we can complete the application for you over the telephone, taking away the hassle of filling out forms, and we’re always here to help if you need to make a claim.
We’re also able to help with other policies you may need, such as Mortgage Life Insurance or Private Health Insurance. Essentially, we work for you and not the insurers.
We offer all of the information you need to make sure that you find the right insurance plan for you. You can get a quote comparing the best 10 UK Income Protection Insurers right here, simply pop in your details and you will be presented with the most competitive premiums for your personal circumstances.
If you’re not sure whether Illness and Injury cover is right for you, you can also use our Income Riskometer which will assess how at risk your income might be.
We hope these answers have been useful but if you are still a bit confused and want we are here to provide some clarity and make sure you find the most suitable protection for your circumstances.
We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.
If your question wasn’t answered here please feel free to pop us a call on 01273646484 or see take a look through our Income Protection FAQs .
We’re here to make sure you get it right so please do not hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.
Tom Conner
Director at Drewberry Insurance