Income Protection (IP) is also known as Accident and Sickness Insurance. It covers part of your salary if you’re unable to work due to injury or illness. Income Protection allows you to pay your essential outgoings, like your mortgage, utilities, and groceries.
Knowing what policy to choose, however, can be overwhelming. There are a number of dfactors to consider before taking out cover. But where do you even start?
We’ve put together this guide on how to compare UK Income Protection. This will give you an idea of the different things to consider before taking out a policy.
Importance Of Comparing Income Protection
Income Protection Insurance comes with a lot of variable features. There’s no ‘one size fits all’. A policy that works for your friends or colleagues won’t necessarily work for you.
You need to have a good understanding of what’s involved in an Income Protection policy. And once you have an idea of what options will suit you, you need to find a provider that meets those needs.
We’ve created a wide range of Income Protection guides to answer some of the most common questions people have. We have also reviewed the leading UK Income Protection providers so you don’t have too. You can view these using the drop down menu at the top of this page.
Or, if you’re ready to compare Income Protection Insurance prices, you can use our handy online quote tool. This will give you pricing from all the best UK insurers, including Aviva, Royal London, and Vitality 🧐.
Comparing Income Protection Policy Options
As mentioned, there are many aspects to Income Protection cover. You’ll need to compare these features when looking to take out a policy.
Comparing Providers
Before looking in-depth at the policy options, it’s important to be aware that each provider is unique. They all have different attitudes to risk, and different ways of approaching customer care.
For instance, some might offer cover to higher risk occupations whereas others might not. Some may focus more on rehabilitation services, whereas others might focus on early intervention. There are also providers who are more suited if you are in a certain profession such as Doctor, Dentist or Pilot and who offer features such as NHS Sick Pay Mirroring.
This is why it’s important to research Income Protection carefully. You need to understand the features of the policy you’re taking out and compare between providers.
Example
To give you an idea of how providers can vary, we’ve provided an example below. This shows the cost of cover from two different providers, using the following criteria:
- A healthy 30-year old
- Non-smoker
- £2,000 monthly benefit
- 8 week deferred period
- A low-risk, office-based role
- Cover until retirement.
Definition of Incapacity
As you’ll know by now, your Income Protection provider will pay a claim if you’re incapacitated due to sickness or accident. However, the definition of ‘incapacity’ can vary depending on the provider and the policy you buy.
Generally, you’ll choose between Own, Any, or Suited Occupation as the basis of incapacity.
- Own Occupation
This definition allows you to claim on your policy as long as you are unable to perform necessary tasks in your own job
- Suited Occupation
With this definition, you won’t be able to claim if you’re still able to work in any job you’re suited for
- Any Occupation
You’ll only receive a claim if you are unable to work in any job.
Own occupation is considered the best definition of incapacity. It means you won’t have to take a job you’re overqualified or unsuited for. Compare provider definitions carefully so you know what you’re signing up to.
Level Of Cover
One of the most important aspects of Income Protection insurance is your level of cover. Depending on the provider, you can cover up to 70% of your gross annual income, but the average is around 60%.
Many insurers also cap the maximum amount of Income Protection cover they’ll provide in relation to your salary. For example, Aviva will cover 65% of the first £60,000 you earn each year, and 45% of any annual income beyond that.
To decide your benefit amount, you need to have a clear idea of your incomings and outgoings. If you’re signed off work and not receiving your full salary, you’ll still need to pay for essentials like rent or mortgage payments, household bills, and groceries.
Example
To show how your chosen Income Protection benefit can impact cost, we’ve provided some examples below. All quotes are from Aviva, and the varying cover is based on the following criteria:
- A healthy 30-year old
- Non-smoker
- £30,000 annual salary
- 8-week deferred period
- A low-risk, office-based role
- Cover until retirement.
As you might expect, taking out the highest level of cover available to you is the most costly option. If you can survive on a smaller proportion of your earnings, this can be a good way to save on your monthly premium.
Deferred Period
This is an example of insurance jargon that sounds complicated. But actually, it’s easy to demystify. A deferred period is simply the length of time you’ll wait between signed off work and your Income Protection claim kicking in.
Providers offer many deferred period options, starting from 1 day and running all the way up to 2 years. In most cases, your chosen deferred period will be determined by two factors:
- Sick pay
You need to take into account the amount of sick pay you receive from your employer before you revert to statutory sick pay
- Emergency savings
It’s also important to consider how long you can cover your living expenses from your emergency savings pot.
For example, if you receive 4 weeks of sick pay and have 8 weeks of living expenses saved, you might choose a 12-week deferred period. But if you don’t receive any sick pay and have minimal savings, you want as little as a 1-day waiting period.
It’s therefore important to compare which deferral period options each provider offers. You also need to understand how the waiting period impacts the cost of an Income Protection policy.
SPECIALIST TIP! 🤓
With a longer deferred period, the risk of having to pay out decreases for an insurer. As a result, a longer waiting period can result in a cheaper policy premium.
Example
We’ve illustrated how benefit level can impact cost with an example below. All quotes are from Liverpool Victoria, and the varying cover is based on the following criteria:
- A healthy 30-year old
- Non-smoker
- £1,500 monthly benefit
- A low-risk, office-based role
- Cover until retirement.
Long-Term Vs. Short-Term Income Protection
Another important feature to compare is the claim period. In other words: how long the provider will pay out a claim for.
Long-Term Income Protection is the most common kind of policy. This means that if you can’t work, a claim will be paid until one of the following events:
- You fully recover and go back to work
- The policy expires due to you reaching retirement age
- Your cover lapses due to non-payment
- You cancel your policy
- You pass away.
Long-Term Income Protection means your provider is accepting the risk of a long-term claim. For example, if you’re unable to ever work again as a result of accident or sickness, a claim could pay out for decades. As such, this kind of cover costs more.
Short-Term Options
Most Income Protection providers offer budget policy options, too. These are known as Short-Term Income Protection. Depending on the provider, you could choose a claim period of 1, 2, or 5 years.
Choosing a Short-Term Income Protection policy is a cost-effective option. But your claim will stop after the agreed period, regardless of whether you’ve recovered.
Example
To give you an idea of how your agreed claim duration can impact cost, we’ve provided an example below. We’ve illustrated how the claims period can impact cost with an example below. All quotes are from Royal London, and based on the following criteria:
- A healthy 30-year old
- Non-smoker
- £1,500 monthly benefit
- 4-week deferred period
- A low-risk, office-based role.
As you can see, there’s a substantial difference in cost. You need to compare providers carefully to make sure you’re choosing the best option to meet your needs. Our handy Income Protection quote tool can help you do this within seconds 🧐.
Mortgage Payment Protection Insurance
Another option available to you is Mortgage Payment Protection Insurance (MPPI). It’s similar to Income Protection, but the benefit amount relates to your mortgage repayments. Having said that, you can cover an additional 25% of your mortgage repayments to help afford other bills and expenses.
MPPI covers you for accidents, sickness and unemployment. However, it’s only available as short-term cover. Depending on the insurer, the maximum length of each claim will be set at either 12 or 24 months.
Type Of Premiums
When you take out your Income Protection policy, you’ll need to decide what kind of premiums you want. You’ll need to choose between guaranteed, age-banded, or reviewable premiums.
- Guaranteed Premiums
Your premiums are guaranteed to remain the same for the life of the policy. If you choose index-linked cover, they will only increase in line with inflation
- Age-Banded Premiums
Each year, your premiums will increase by a percentage laid out in your policy documents. This correlates with your age to reflect the increased risk of you claiming as you get older
- Reviewable Premiums
Premiums can be ‘reviewed’ on a regular basis by the insurer and increased for many reasons. Providers will consider medical inflation, their own economic performance, and claims trends in any given year.
It’s worth comparing prices from all the insurers you’re considering so you know what you can expect later down the line.
Level Vs. Index-Linked Income Protection
Another feature you’ll need to consider is index-linked Income Protection. Doing so means your benefit, and your premium, will increase each year with the Retail Prices Index (RPI) rate of inflation.
Index-linked Income Protection ensures that your cover increases in line with your living expenses and wages. It prevents inflation from eroding the purchasing power of a future claim. For that reason, it’s usually most suitable for Long-Term Income Protection.
When comparing Income Protection policies, you need to be sure of what you’re signing up for, as well as how this might change in the future. It’s important to see what options are available and which would suit you best.
Adding Unemployment Cover
As a general rule, Income Protection policies only cover you for incapacity through an accident or sickness. However, there are some instances where Unemployment Insurance can be included as an add-on. For an extra premium, it provides cover if you become unemployed as a result of involuntary redundancy.
Where Income Protection covers accident and sickness, PPI is used to cover your outgoings for a short-term period only. It’s typically used for loan repayments and isn’t always suitable for unemployment cover.
Policy Exclusions
Lastly, you need to look for any exclusions on the cover you want to take out. Some exclusions are fairly universal across most insurers. For example:
- Self-inflicted injuries
- Drug or alcohol misuse
- Travel to a country with active internal conflict, political instability, an active epidemic, or to which the Foreign Office has advised against travel.
Different providers place different exclusions on Income Protection policies based on their attitudes towards risk and customer care.
Where one provider might place exclusions on certain occupations, others might exclude certain hazardous hobbies or pastimes. We provide more detail on this below.
Personal Factors To Consider When Comparing Income Protection Insurance
As well as choosing aspects of your cover, there are personal factors that will impact the policy too. Certain parts of your lifestyle might lead insurers to assess you as a higher risk of being signed off work.
Different providers approach these factors in different ways, though. Some will exclude incapacity arising for certain reasons, such as a hazardous occupation or hobby. Others might increase your premiums to account for an increase in risk.
It’s important to compare these aspects when taking out your policy, as the cover and cost will vary across the market.
Occupation
What you do for a living could also affect your Income Protection cover. What one provider views as a high-risk job, another might not. As a result of this, the premiums you pay with one insurer could be much higher than with another.
When an insurer classifies a particular job as high-risk, they often add a loading fee rather than excluding it altogether. Depending on how risky they judge a job role to be, it can become very expensive to take out cover.
Examples of high-risk jobs can include:
- Pilot
- Armed Forces
- Emergency Services
- Construction Worker
- Oil Rig Worker
- Scaffolder
- Diver.
It’s often surprising which job roles can be classified as high-risk. As a result, it’s always useful to compare different insurers’ risk ratings when it comes to jobs. This way, you can make sure you’re getting the best cover for your own circumstances.
Example
To give you an idea of how costs can vary based on job role, we have provided an example below. The quote compares the cost of Income Protection for a Marketing Manager Vs a Scaffolder. The quotes are both from Aviva and based on:
- A healthy 30-year old
- £1,500 monthly benefit with Guaranteed Premiums
- 4-week deferred period
- Full term benefit period.
Smoker Status
It can be hard to find the best Income Protection as a smoker. The majority of insurance providers will charge you a higher premium if you smoke. As you might expect, this is due to the increased health risks that come from consuming nicotine.
Despite that, there are a few insurers in the market that take a neutral stance on smoking. If you’re a smoker, it’s worth comparing different insurers to see what their individual stance is.
Example
To help give you an idea of how smoking can affect Income Protection Premiums, we’ve provided an example below. The quotes are both from Vitality and based on:
- A healthy 30-year old
- £1,500 monthly benefit with Guaranteed Premiums
- 4-week deferred period
- Full term benefit period
- A low-risk, office-based role.
Medical History
When it comes to applying for Income Protection, your medical history is one of the key factors providers will consider. This is because any pre-existing health conditions could have a future bearing on your sickness-related absences from work.
When an insurance provider considers you for cover, your health assessment could result in:
- Exclusions being placed on your policy
- The level of cover you can get
- How much your premiums will cost.
Different insurance providers have different approaches to underwriting. Some disregard certain pre-existing medical conditions, such as type 2 diabetes. Others don’t assess your health if you’re below a certain age. You need to compare what’s on offer to make sure your cover suits your circumstances.
Hazardous Hobbies
The hobbies you undertake in your spare time could also result in you being deemed high-risk. For instance, if you take part in sports such as rock climbing, skiing or hang gliding, there’s an increased risk of you sustaining an injury and being unable to work.
Different providers can have different views on which activities are hazardous. You need to understand how insurers classify certain hobbies, as this can impact the cover you get and the price you pay.
Comparing Providers’ Claim Rates
Another important factor to look out for when comparing Income Protection providers is the claim payout rate of each insurer. In other words, the percentage of claims a provider receives that are successfully paid out.
It’s good to consider the claims rates alongside the insurer’s terms and policy features. If they have a high claim rate but don’t provide suitable cover, it’s not worth buying.
Below you’ll find published payout rates from insurers over the last three years.
IMPORTANT NOTICE! 🧐
You shouldn’t use payout statistics alone to decide which insurer offers the best Income Protection Insurance. It’s best to use the table as a rough guide to compare across the industry as a whole.
Going Direct VS Speaking With An Adviser
There are two ways you can buy Income Protection cover. The first is to go direct to your chosen provider. The second is to go through an independent advisor. Each is different, but one has much more protection than the other.
From everything we’ve covered above, you can see how much is involved when taking out Income Protection insurance.
It’s not as simple as getting a quick quote and applying online. You need to make sure that any cover you take out fits your personal circumstances, your health and lifestyle.
Going Direct To An Insurer
Everyone hopes never to need their accident and sickness policy. But, if the worst does happen, you want to be sure that the policy will pay out.
If you go direct, your policy is classed as a non-advised sale. This gives you no financial protection if the cover turns out to be unfit for purpose. If you haven’t read the terms or disclosed certain information, you might not be able to make a claim in the future.
Speaking With An Independent Adviser
Having a specialist adviser on your side can save you the time and trouble of researching everything yourself. It also offers you financial protection.
When you take out a policy through an adviser, it’s known as an ‘advised sale’. This means that the advisor takes responsibility for the Income Protection cover being suitable for you. If it turns out not to be fit for purpose later, you have financial protection through the Financial Conduct Authority.
Specialist advisers, such as the team here at Drewberry, know this kind of protection inside and out. By listening to your needs, they can identify the most suitable providers for you and save you hours of your own time. They can do all the heavy lifting for you; from researching the market to putting the policy in place smoothly.
