Income Protection Insurance

Income Protection Insurance is designed to replace a proportion of your monthly income should you suffer an accident, sickness or unemployment that prevents you from working.

The payout allows you to keep up with all your essential core expenditure, from mortgage / rent to utilities and grocery shopping.

• Cover up to 70% of your gross annual salary.
• Choose from policies that pay out after as little as 1 week of illness or injury.
• Protect your income for the rest of your working life right up until your expected retirement age.
• 31% of UK adults have experienced leave from work due to unexpected ill health, a cancer diagnosis or even a death in the family. Aviva
• In 2018, leading insurers Liverpool Victoria and Legal & General both paid 95% of valid Income Protection claims.

What Does Income Protection Cover?

As Income Protection cover is not limited to a set list of conditions and with many insurers having very few standard exclusions it is considered the most comprehensive form of incapacity insurance available.

It is designed to cover anything that medically prevents you from working, including accidents, bodily injuries and periods of sickness / illness.

The best Income Protection will cover you in your own occupation, meaning as long as you’re incapable of doing your specific job role you should be able to make a claim.

Including Unemployment Insurance

For more comprehensive salary protection, you may want to consider adding Unemployment Insurance to your policy. This will pay out if you lose your job through forced redundancy.

To qualify, you need to lose your job through no fault of your own. In such circumstances, you’ll receive a payout for either 12, 18 or 24 months depending on your policy or until you can find a new job, whichever is sooner.

Expert Tip :: You Might Be Better With Separate Unemployment Insurance
You can buy combined Income Protection with Unemployment Insurance – known as Accident, Sickness and Unemployment Insurance – but as the Unemployment Insurance is short-term, the Accident & Sickness Insurance element also tends to be short-term.

As such, we often recommend buying standalone, long-term Income Protection that will pay out until retirement if you can never work again rather than just for a few years.

Then, if Unemployment Insurance is appropriate and required, we tend to recommend buying it separately from the Income Protection to ensure fully comprehensive protection.

What Doesn’t Income Protection Cover?

In general, there tends to be very few standard exclusions on Income Protection policies. However, this said, many providers limit claims resulting from:

• Self-inflicted injuries
• Drug or alcohol misuse / abuse
• Travel to a country with active internal conflict, political instability, to which the Foreign Office has advised against travel or with an active epidemic.

What About Existing Health Conditions?

If you have existing health conditions it can make taking out Income Protection a little more complicated. When setting up your policy you will need to declare any existing medical conditions.

The insurer will review the medical information you provide and is likely to make one of three decisions.

• Cover the condition on standard terms.
• Increase the premium to reflect the greater risk of covering someone with that condition
• Exclude the condition

If you have a pre-existing condition, it’s always best to speak to an independent expert such as one of the team at Drewberry. We have direct access to the underwriters at all the leading insurers which puts us in a great position to negotiate the best terms for you.

If you need help please don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

Do I Need Income Protection Insurance?

You might buy Income Protection for many reasons, from not receiving much (if any) sick pay from your employer to having little in the way of savings to fall back on should you find yourself out of work.

Whatever the reason, recent statistics have found that the risk of being out of work is much higher than many people might assume:

• 14.7% of the over-55s had been out of work for at least 6 months at some point during their careers, according to Drewberry’s 2018 Protection Survey.
• There were more than 2 million people who are what statisticians call ‘economically inactive’ due to long-term sickness in the 3 months to January 2019.

How Would You Cope Financially If You Were Too Ill To Work?

Our 2017 Wealth & Protection survey revealed:

• 2 in 5 people have no more than £1,000 in savings to fall back on
• 1 in 4 people have less than £100 at the end of the month after covering all essential expenses.

Clearly, many people cannot afford to use their savings to cover their monthly bills if they stop earning.

In addition, Employment Support Allowance offers limited support starting as low as £73.10 per week if you’re over 25. While other state benefits are available, these depend on your circumstances and the nature of your disability and aren’t guaranteed.

When you consider that average weekly spending for UK households is more than £500, it’s unlikely that ESA alone would come even close to being able to support your lifestyle while you are not working. Even where other benefits are available, these may not top up your income back to the average household spending figure.

Try Our Income Risk Calculator…

You can try our Income Riskometer to see how at risk your income is should something happen to you.

Simply answer 5 questions about your circumstances and it will calculate how safe your lifestyle is should you be unable to earn an income due to illness, injury or forced unemployment.

Having seen it first hand, I can’t emphasis enough the power of financial support in helping people get back on their feet.

For some people it can quite literally mean the difference between life and death.

Kevin Carr
CEO of Protection Review and Co-Chairman of the Income Protection Task Force (IPTF)

When Should I Consider Buying Income Protection?

When You’re Young and Healthy

Unfortunately, some people wait to apply for protection insurance until they are at the point of realising that their health is at risk. However, by this point it’s almost too late to get cover as you’ll be potentially faced with higher premiums or exclusions on conditions you’ve already developed.

Instead, the best time to buy a policy is when you are young and healthy. The healthier you are when applying for a policy, the better deal you are likely to get. If you choose to guarantee your premiums, you can also keep the cost of your policy down across its lifespan.

When You Experience Life Changes

There are certain lifestyle events where we tend to take on more responsibility and realise just how important it is to protect our salary should we suffer an illness or injury which renders us unable to earn a wage.

• Buying a home
  Our home is usually our most valuable asset and many of us commit the majority of our working lives to paying off a mortgage. To ensure that you can keep up with your payments even if you can’t work, it’s worth considering an insurance policy to protect your salary. Without a regular income, there’s a risk that you may one day not be able to afford to make payments and could potentially lose your home.
• Changing jobs or getting promoted
  If you already have Income Protection when you are promoted, you will often be able to increase your policy’s cover to match your new salary without needing to provide any medical evidence. If you don’t have a policy yet, however, getting a new job is a great time to take out a policy, especially if your employer does not provide you with any insurance protection through a company funded scheme or offers only limited sick pay.
• Becoming self employed
  Income Protection is especially important for the self-employed. Without any sick pay to fall back on, the self-employed are particularly vulnerable if they can’t earn an income. As such, it’s sensible to consider protecting yourself financially with comprehensive sickness insurance so you do not need to worry where your money is coming from if you are ill to work.
• Birth of a child
  Having an extra dependant join the family who will rely on your salary is another reason to make sure your income is adequately protected.

Income Protection for Self Employed & Company Directors

While standard Income Protection policies will be suitable for most people, the self employed, business owners and workers in certain occupations may require specialised cover.

Salary, dividends and setting an appropriate level of cover

For the self employed and company directors who run their own business there is no safety net of an employer which makes income protection even more important. With directors often paying themselves a small salary and the rest in dividends it is important to speak to an expert adviser to make sure you can take out cover where your dividends can be protected.

For the self employed making sure the amount of cover aligns with what gets declared to the HMRC ensures that you do not over insure yourself and pay for cover which you are unable to claim on.

Doctors and NHS Sick Pay

For example, people who work for the NHS use a tiered sick pay system, where the length of time they have been employed determines how much sick pay they are entitled to. In addition, half of their sick pay entitlement consists of half payments, which may not be able to be sufficient to cover their necessary expenses.

To accommodate this, some insurers have put together specialised Income Protection for doctors. These policies allow doctors and surgeons to set their deferred period to match their full sick pay, yet the policy will pay out limited benefits when they begin receiving half sick pay to top up their income.

Do I Need Income Protection or Critical Illness Insurance?

It can be confusing as to whether Income Protection or Critical Illness is the best option. The policies sound similar but actually work quite differently.

Income Protection, as mentioned, involves you paying regular premiums in exchange for a policy that will provide a regular monthly income if you’re medically unfit to do your job for any reason. The best Sickness Insurance will pay out right up until your retirement if you can never work again.

These regular payments help you manage all your essential monthly outgoings, from your mortgage / rent to your grocery shopping and utility bills.

Instead of a regular income Critical Illness Insurance will provide a single lump sum if you can’t work because of one of the insurer-specified ‘critical’ illness conditions listed in the policy.

The big three claims on Critical Illness Insurance are:

• Cancer
• Heart attacks
• Strokes

Different Critical Illness policies can cover anywhere from 10 to 150 serious illnesses. In addition to the big 3 detailed above you can expect multiple sclerosis, motor neurone disease, permanent loss of vision / hearing and other catastrophic illnesses / injuries to be covered.

The difference is that the condition has to be critical as defined by the insurer for Critical Illness Insurance, whereas with Income Protection the condition can be anything that stops you from working. This might include a bad back or stress, which is by no means critical but can be nonetheless debilitating.

Moreover, it can be hard to gauge how long you’ll be out of work with a particular illness, making it hard to know how long a lump sum from a Critical Illness Insurance policy would last. Income Protection, by paying you a regular income similar to a salary, eliminates this concern.

For more information on the key differences see our Income Protection vs Critical Illness Insurance Guide.

It is good to see yet more very interesting Drewberry research. I think it highlights the fact that we don’t have a hierarchy of needs in protection insurance and while we don’t products may be sold without the main focus being on customer need.

Critical Illness does a very important job but I believe Income Protection should outsell it by a significant margin.

Peter le Beau MBE FCII JP
Le Beau Visage and Seven Families Initiative

Do I Need Income Protection or Payment Protection Insurance?

Payment Protection Insurance (PPI) and Income Protection are two totally separate protection products designed to do different things.

PPI is there to allow you to keep up with loan repayments if you can’t work due to accident, sickness or potentially unemployment. Mortgage Payment Protection Insurance, meanwhile, does the same for a mortgage.

Given the policy is usually tied to a loan repayment, you’re usually only able to insure that loan repayment. While the mortgage or loan may be covered, this leaves many other expenses not protected.

With Income Protection, you’re insuring a proportion of your salary against the risk of accident or sickness. This can include loan / mortgage repayments as well as other monthly costs.

Payment Protection Insurance may also have standard exclusions (such as no cover for back pain or mental health problems) and use a lesser definition of incapacity that could make it more difficult to make a successful claim.

For more information on the key differences see our Income Protection vs Payment Protection Guide.

How Does Income Protection Work?

If you are ill or injured in such a way that leaves you incapable of working and earning a salary, Income Protection Insurance will pay out a monthly benefit to cover a proportion of your income.

Unlike Critical Illness Cover, which only covers policyholders for serious health conditions on a predetermined list, Income Protection covers nearly every illness or injury that prevents you from doing your job resulting in a loss of income.

When taking out Income Protection, you have four major policy decisions to make. These will notably impact the price of the policy and form the core of any decent protection product.

• Level of cover
  This is also referred to as the ‘sum assured’. It simply means how much you will be covered for each month. You can protect between 50% and 70% of your gross (pre-tax) earnings, with the average a person protects being 60%-65%. The more you want to insure the more your protection will cost, so think carefully about whether you really need to go for the maximum or whether you just want to cover the essentials.
• Length of deferral period
  Your deferred period is how long you have to be off work before the cover kicks in and starts paying out. This can be as short as 3 days off work before the insurer backdates payments to the first day you were off sick. Other insurers run deferred periods up to 1 year+, which might be useful if you get generous employer sick pay. The longer your deferral period, the cheaper your policy.
• Policy cease age
  How long your cover will last – this is typically set to match with the age you anticipate retiring. Although many policies will offer a payout all the way up to age 70, this will notably increase the cost compared to a policy that ends at age 65 or even 60, so think carefully about your cease age and how long you’d realistically need this protection for.
• Payout period
  This refers to the length of time you’ll receive a benefit for in the event of a claim. Cheaper, short-term policies will only pay out for a maximum of 1, 2 or 5 years per claim, which may not be sufficient if you suffer a long-term disability. The best Sickness insurance will pay out long-term with no limits, right up until retirement if required in a situation where you can never work again.

Choosing Your Premiums

There are three main types of premiums to concern yourself with when you take out Income Protection. These will also influence the price of your policy, although this influence will be felt more over time than immediately.

• Reviewable premiums
  Generally speaking, these will work out more expensive if you hold the policy for a long period of time. This is because, although they’re usually cheaper to start with, they can increase as the insurer sees fit. This might be down to poor underlying economic performance or the insurer experiencing a spike in claims in a given year.
• Age banded premiums
  These premiums also increase over time. However, unlike reviewable premiums, they can only do so by a set percentage increase each year. This will be laid out clearly in the policy documents and simply reflects the increased risk of you claiming as you age. These tend to work out cheaper at the start but, as they rise with time, also may work out more expensive over the life of the policy depending on your circumstances.
• Guaranteed premiums
  While these may be a little more expensive to start with, if you plan to hold the policy over the long-term they can work out cheaper with time. This is because they can’t change from the date you start your policy to the date it ends, which can be beneficial if you take out the policy while you’re young and healthy and premiums are at their lowest.

Should I Link My Protection to Inflation?

To ensure that your insurance benefits keep up with the rate of inflation, most insurers give you the option to index link your Income Protection policy.

This means that your insurer will annually assess changes to the Retail Price Index and adjust your benefits to match these changes. They’ll write to you every year to let you know and, if you agree to the increase in benefit, to compensate for the fact that you’ll be receiving a higher benefit your premium will also rise.

Which Definition of Incapacity?

There are three definitions of incapacity that your policy might be written under, with each one impacting whether you can claim by determining the level of incapacity you need to suffer before you can receive benefits.

Own Occupation Cover

Own occupation protection allows you to receive a payout if you’re incapable of working in your specific job role. You won’t be asked to attempt another job if you can’t work. As such, this makes it arguably the best definition of incapacity.

So, for instance, a surgeon with a hand injury wouldn’t be able to perform surgeries and so would generally be able to make an Income Protection claim due to that injury.

Suited Occupation Cover

With this definition of incapacity, you’ll only be able to make a successful claim if you can’t do either your job or another job that suits your skills, education and experience.

This may mean a surgeon with a hand injury couldn’t perform surgeries but may face not being able to make a successful claim because they have the skills and experience to teach medicine instead.

Any Occupation / Work Tasks

This is the most difficult definition of incapacity to claim on and in general we recommend most clients avoid it.

It means you can only make a successful claim if you become so disabled you can’t perform any job or perform a set number of tasks required by most professions, such as typing or signing your name. It requires almost total incapacity to make a successful claim.

How Do I Make An Income Protection Claim?

Paying claims is the most important thing the protection industry does and there have been real developments recently in paying claims faster and making the claims process far easier for clients.

Some insurers can now even handle the claim over the telephone without having to send out a claim form. Should you ever need to claim we have a team on hand to support and make sure it is dealt with as smoothly as possible.

• You are injured or fall ill and become incapable of carrying out your duties at work.
• As soon as it becomes apparent that you’ll likely be out of work for longer than your deferred period, contact your insurance provider as soon as possible and provide them with a completed claims form and evidence of your condition. This may be done online or in the post depending on your insurer.
• After your provider has approved your claim, they will inform you how and when you will begin receiving your benefits. You will need to continue paying premiums until you reach the end of your policy’s deferred period.
• If you are still not fit to return to work by the time you have reached the end of your policy’s deferred period, your insurance provider will begin paying out benefits on a monthly basis to mimic a percentage of your pre-tax salary.
• If you have short-term Income Insurance, you will be able to claim your benefits for a maximum of 1, 2 or 5 years before the payout will cease. With a long-term policy, you will be able to continue to claim your insurance benefits until you reach retirement age or the agreed-upon cease age of your policy if you can’t ever return to work.

British Friendly and Neil’s Cancer Claim…

Neil is a client of Drewberry who took out an Income Protection policy with British Friendly. He’d had his policy for just 4 years before falling ill.

After experiencing a bout of stomach pains, Neil took himself to his GP who referred him on for further tests. These tests discovered that he unfortunately had bowel cancer, and it was already at stage 2.

Neil needed surgery to remove the cancer, but developed post-operative sepsis and had to spend several weeks in hospital recovering, completely unable to work.

British Friendly began paying him a proportion of his earnings after his deferral period, allowing him to keep up with all the important bills, such as his mortgage, which he was unwell.

🤕 Read More About Neil’s Claim

Other Client’s Income Protection Claims

The table below shows how an Income Protection policy has saved five people financially following an illness which left them unable to work.

The information is from Liverpool Victoria’s claims history, it demonstrates how anyone can lose their income, regardless of age, gender or occupation, LV’s youngest claimant was just 22 years old.

Will A Claim Pay Out?

The vast majority of Income Protection providers now publish their claims statistics which is a real step forward in building trust.

Each year the Association of British Insurers (ABI) publishes average payout rate statistics from across all insurers. The latest figures are from 2017 and show that 87.2% of all Income Protection claims were paid, with over £600 million paid out in total.

Below is a table of the top 5 providers by their claims payout rate.

How Much Does Income Protection Cost?

The cost of Income Protection won’t be the same for everyone. The pricing of your policy will be decided by a range of factors relating to your policy options and your personal circumstances.

As well as the above four policy factors, you’ll also need to consider the following three personal factors:

• Your age
  The older you are when you take out the policy the higher the chance that you’ll need to make a claim and therefore the premium is higher.
• Your smoker status
  The risk of serious illness increases significantly if you smoke and the premium charged by the insurer will reflect this.
• Your medical history
  If you have suffered from an illness or injury in the past, the insurer may place an exclusion on the policy or decide to offer cover for that same ailment but increase the premium charged due to the increased risk of covering that condition.

Average Cost of Income Protection

In the below table, we’ve laid out the average monthly cost of Accident and Sickness Cover as well as for Accident, Sickness and Unemployment Insurance.

To work out the cost of Income Protection, we’ve assumed:

• The individual is a healthy office worker
• They want a benefit of £1,500 a month
• They’re looking for an 8 week deferral period
• Their cease age will be age 65
• They’re looking for long-term cover
• They want to guarantee their premiums for the life of the policy.

The Income Protection quotes detailed below represent the cheapest policy that matches the above criteria from across the entire UK market.

Compare Best UK Income Protection Quotes

AIG

AIG is one of only a handful Income Protection providers to offer cover for individuals with type 2 diabetes. It is also willing to offer diabetics guaranteed premiums and will not exclude diabetes in its policy, unlike other providers.

• Maximum coverage: 60% of the first £30,000 of your salary / 55% of salary between £30,000-£100,000 / 45% of any salary £100,000+
• Deferred periods: 4 / 8 / 13 / 26 / 52 weeks
• Maximum entry age: 54

Aviva

Aviva covers all policyholders with an own occupation definition of incapacity and, if you choose to return to work in a different occupation until you are well enough to return to your pre-incapacity occupation, Aviva will top up your reduced income with Back to Work Benefits.

• Maximum coverage: 55% of your pre-tax salary, up to a maximum of £240,000 per year.
• Deferred periods: 4-104 weeks (104 weeks is the longest available deferred period for UK Accident & Sickness policies)
• Maximum entry age: 59

British Friendly

British Friendly gives access to its Mutual Benefits program, which provides rewards such as vouchers for high street shops, discounted fitness tracking devices, emotional support services and online legal services.

• Maximum coverage: 70% of your pre-tax salary, up to a maximum of £45,000 per year.
• Deferred periods: Day 1 / 1 / 4 / 8 / 13 / 26 / 52 weeks
• Maximum entry age: 64
• One of the few insurers that will cover pilots on an own occupation basis

Cirencester Friendly

Cirencester Friendly provides you with a range of additional benefits and services, including a hospitalisation benefit and a Friendly Voice service that provides you with a personal nurse that you can contact for advice and emotional support.

• Maximum coverage: 65% of your pre-tax salary, up to a maximum of £65,000 per year.
• Deferred periods: Day 1 or 4 / 8/ 13 / 26 / 52 weeks
• Maximum entry age: 54

The Exeter

The Exeter is one of the few UK insurers that is able to offer own occupation cover to workers in higher risk occupations, although such policies only offer age banded premiums.

• Maximum coverage: 60% of your gross salary up to the first £100,000 and 40% of any additional income.
• Deferred periods: Day 1 / 1 week / 4 weeks / 8 weeks / 13 weeks / 26 weeks / 52 weeks
• Maximum entry age: 59

Legal & General

L&G offers a free life cover element that pays out a maximum of 12 times your monthly benefit if you pass away while the policy is in force.

• Maximum coverage: 60% of your annual income before tax, up to a maximum of £200,000 per year.
• Deferred periods: 4 /13 / 26 / 52 weeks
• Maximum entry age: 60

Liverpool Victoria

LV offers free access to unique LV Doctor Services, which include fast access to remote GP services, second opinion services and private prescriptions for policyholders and their children up to the age of 16.

• Maximum coverage: 60% of your annual income before tax, up to a maximum benefit of £12,500 per month
• Deferred periods: 1 month / 2 months / 3 months / 6 months / 12 months
• Maximum entry age: 59

Royal London

Royal London can include Fracture Cover, which pays out a lump sum of between £1,500 and £4,000 on top of any benefit you’d receive for being off work if you receive a fracture of a specified body part

• Maximum coverage: 65% of the first £15,000 income and 55% of the remainder, up to a maximum of £250,000 per year
• Deferred periods: 4 / 8 / 13 / 26 / 52 weeks
• Maximum entry age: 59

Shepherds Friendly

Shepherds Friendly allows you to apply to suspend cover and premium payments under your plan for a minimum continuous period of 3 months and up to a maximum continuous period of 24 months. This is known as ‘Career Break’ option.

• Maximum coverage: 70% of income up to £49,000 per year
• Deferred periods: Day 1 / 1 week/ 4 weeks / 8 weeks / 13 weeks / 26 weeks / 52 weeks
• Maximum entry age: 60

Vitality

Vitality provides a unique offering. While the core of its policy is similar to other providers’ offering, it also offers a unique set of additional benefits to those who participate in the Wellness / Optimiser programs that can include policy discounts and rewards.

• Maximum coverage: 60% of your earnings capped up to £2,500 per month and 50% of any earnings above, up to a maximum of £16,666 per month
• Deferred periods: 1 week / 1 / 3 / 6 / 12 months
• Maximum entry age: 59

Get Expert Income Protection Advice

We want to make sure you have all the necessary information and guidance so you are able to make the right financial decision when it comes to protecting you income.

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 2335 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.

Taking out Income Protection Insurance can be a bit of a minefield with a few important pitfalls to avoid.

If you need some help please do not hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

Tom Conner
Director at Drewberry