Key Things To Check When Buying Income Protection

What is Income Protection and do you really need it?

In a nutshell, Income Protection is designed to cover your income if you are unable to work due to accident or illness. The policy will pay out up to around 65% of your gross salary until you are fit enough to return to work or for a fixed period of time. Usually until you retire but this depends on the kind of protection you have (we talk more about this later).

Consider if you had to take time off work due to illness or accident, would you be able to continue paying for life’s necessities such as mortgage or rent payments, household bills and food?

In our Protection Survey we found that 24% of workers reported that they did not receive any employer provided sick pay and over half of the sample (58%) stated that they would receive 3 months or less in sick pay.

With statutory sick pay currently at £116.75 per week and the real chance of not receiving any sick pay benefit from your employer it’s fair to say that most people would struggle to continue in the long term without any income.

Which Policies Should You Avoid?

When researching personal protection, people often come across PPI (Payment Protection Insurance). Although this cover sounds very similar to Income Protection (and is sometimes called Income Protection online) there are two main issues with it. A lot of these PPI plans don’t include Own Occupation cover and with monthly premiums being ‘reviewable’ the insurers are free to increase them each year.

When looking to cover the risk of accident and sickness, we would nearly always recommend Income Protection over PPI products to our clients. We know that true Income Protection is a much more substantial product and we are with you every step of the way when looking at your options.

Key Points To Consider When Buying Income Protection

If you’ve decided that Income Protection is the right cover for your circumstances, you now need to understand the different elements of what make up the policy.

Own Occupation vs. Suited Occupation cover.

The definition of Own Occupation means that you are covered if you’re unable to work due to illness or accident in your specific role. This is something that we always recommend and do our best to get for our clients.

Avoiding Suited Occupation cover…

Suited Occupation cover means that if you’re unable to work in your current role, your insurer may say that you’re not eligible for a claim because you could undertake a lesser role (based on your skills, experience or education). For example, if you work in sales and are finding it too stressful the insurer may say that your office skills could be applied as an administrator and not pay your claim.

Some inferior products such as PPI and some ‘off the shelf’ Income Protection policies only offer Suited Occupation cover and is something that you should try to avoid when possible.

Long Term vs. Short Term

It can be very tempting to take out a policy that can pay out for 12 months because the monthly premiums are far lower but such a short payout length leaves a lot of exposure to serious medical conditions. To highlight this, claims statistics published by the Association of British Insurers (ABI) showed that the average claim length was nearly 4 years!

As a result, we would really recommend a policy that could payout for as long as you need it to, even up until retirement age if you are too unwell to return to work again. If budget is an issue then look for plans with a maximum payout length of 5 years or 2 years as a minimum.

Fixed vs. Increasing Premiums

Some Income Protection insurers offer policies that have rising monthly premiums. These rise with your age and although these plans can look more attractive to begin with, you could end up paying much more in the long run.

Example
A 30 year old non smoker who would like to cover £1500 per month with a deferred period of 13 weeks would spend around £24 per month on their premium. A 45 year old would need to spend around £54 per month for the same policy.

If you are able to lock in your premiums now it will bring peace of mind that your policy will never go up for the duration of your cover. We have built a tool for our advisers so they can work out which method is more cost effective for our clients overall.

Choosing Your Deferred Period

When it comes to selecting a deferred period (the duration of time between becoming unable to work and making a claim and then receiving the benefit) you really need to know your sick pay entitlement from your employer. Insurers won’t pay out until this time has passed and so you could be paying for cover that you actually can’t claim for. It’s also worth knowing that the longer you can wait before claiming benefit the lower your monthly premium will be.

Get Expert Income Protection Advice

There is a lot to consider and a few pitfalls to avoid when taking out cover. If you need any help we are here to make sure you find the most suitable Income Protection for you needs.

Why Speak to Us…

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.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 3764 and growing independent client reviews rating us at 4.92 / 5.
• Gain the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.