Why Disability Insurance?
Disability Insurance provides you with a monthly income should you suffer either a short or long term disability which renders you unable to work.
Cover up to 70% of your gross income right up to your expected retirement age.
Designed to cover your core monthly financial commitments such as your mortgage/rent, bills and food.
Income Protection is the one protection policy every working adult should consider. Which? Money
Speak to our expert independent advisers or get an instant online quote to compare the UK’s leading insurers.
What Does Disability Insurance Cover?
Accident & Sickness
When the ‘Own Occupation’ definition of incapacity is used the policy will pay a monthly income should you suffer any illness or injury which prevents you from working in your own specific job role.
This means that the policy would cover a temporary disability (such as a slipped disk or a broken leg) or a permanent disability (such as paralysis or suffering a disease of the central nervous system).
Disability Insurance doesn’t limit the cover provided to a set list of conditions and many insurers do not have any standard exclusions. This makes them the most comprehensive form of financial protection against incapacity available on the market today.
How Does Disability Cover Work?
You cease working due to any accident or sickness which leaves you disabled and prevents you from doing your job role.
You make a claim with the insurer. (You will need a medical evidence from your doctor and may need to complete a claims form.)
The insurer will start to pay a monthly benefit after you have been unable to work for the length of your deferred period.
The policy pays out until you return to work or reach the maximum payout length.
Do I Need Disability Insurance?
When deciding if disability insurance is worthwhile it makes sense to weigh up the risk of something happening and the potential consequences:
The Incapacity Risk:
1 in 10 people have been unable to work due to illness or injury for 6+ months (The Guardian/Unum Survey).
With Employment Support allowance averaging at £73.10, many people without insurance protection for their salary will see a significant drop in income if they are unable to work.
If you lost your income how would you continue to meet your core outgoings if you didn’t have disability cover?
Your Key Options
Choose your level of cover
Depending on the insurer, it is possible to cover anywhere from 50% to 70% of your gross (pre-tax) income.
Choose your deferred period
This is the length of time you would need to be off work before the policy kicks-in and starts paying out. Deferred periods range from 1 day to 12 months.
Choose your payout length
Short-term plans can payout for a maximum of 24 months and long-term plans can continue paying out right up until the end of your working life should you be unable to return to work.
What is Disability Insurance?
Disability Insurance is one of the most comprehensive forms of protecting your income. It has been a popular means of financial protection for over 100 years and is also commonly referred to as permanent health insurance.
Should you suffer illness or injury that prevents you from working a Disability Insurance policy will provide you with a monthly income until you are well enough to return to work.
The best Disability Insurance can cover practically any medical condition that prevents you from working in your current position. This includes anything from stress and backache to cancer and heart attacks, not to mention permanent disabilities such as paralysis or neurodegenerative conditions.
If you choose a long-term policy, you can continue claiming compensation for your lost income right up until your expected retirement age.
How Does Disability Insurance Work?
Disability Insurance is also known as Income Protection Insurance and works in the same way.
- Step 1: You encounter a health problem that prevents you from working and take leave to recover.
- Step 2: Contact your policy provider to make a claim. You’ll typically need evidence of your incapacity in the form of a doctor’s note or other information from a consultant.
- Step 3: Once your provider has approved your claim, your deferred period will begin. During this time you won’t receive a benefit, but may be receiving sick pay benefits from your employer.
- Step 4: If, by the end of your deferred period, you are still not well enough to return to work, your insurer will begin providing you with monthly income. These benefits are usually transferred electronically into your bank account each month.
- Step 5: You can continue receiving benefits if you need them until you have recovered, come to the end of your claims limit, or reached your policy’s cease age.
- Step 6: Once you reach your policy’s cease age, your policy will end.
The income that you receive from a Disability Income Insurance policy depends on your salary before you took leave. You are typically able to insure up to 70% of your gross monthly earnings (the sum before income tax is deducted) and the policy can last all the way up until your planned retirement.
Disability Insurance is medically underwritten at point of application and doesn’t cover pre-existing conditions.
If you currently can’t work due to a disability please see the Gov.uk website for information on Personal Independence Payment (if you need a carer) or Employment and Support Allowance (if you don’t need a carer).
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Is Disability Cover Worth It?
In the 3 months leading up to June 2018, more than 2 million people in the UK were not looking for work due to long-term sickness. The risk of disability/incapacity is a very real financial risk that can be protected against with Disability Insurance.
With Employment and Support Allowance averaging at £73.10 per week and household spending in the UK rising to £554.20 per week in 2017, many people would face a shortfall if relying solely on ESA.
Independent Protection Expert
The purpose of Disability Cover is to ensure that you have an income to rely on if poor health prevents you from working. For people who don’t have savings to support them or who have family members that rely on their income, a Disability Insurance policy can provide vital support if you were to suffer an illness or injury which rendered you unable to earn an income.
Disability Insurance vs Critical Illness Insurance
The most common alternative to Disability Insurance that people consider is Critical Illness Insurance. While Disability Cover will pay out multiple monthly income which aligns with your expenditure, Critical Illness Cover will pay out one large lump sum on a claim.
It can be tempting to opt for Critical Illness Insurance but there are a fair few reasons why Disability Insurance can be a better option to rely on if you are unable to work.
- Disability Insurance policies allow you can claim for any health problem that renders you incapacitated, whereas a Critical Illness policy requires your health condition to be on a set list or serious illnesses detailed in the policy’s terms.
- Disability Cover will protect against ‘minor’ illnesses and injuries, such as bad backs, as well as more serious ones such as cancer. Critical Illness Insurance, on the other hand, is only there to guard against more serious illnesses/injuries, such as total paralysis or severe cancers.
- If your health problem results in a long-term disability, a lump sum payment from a Critical Illness policy won’t stretch indefinitely. However, long-term Disability Insurance will provide you with steady income until you are back in employment or about to retire.
- Disability Income Insurance can cover you for more than just one incident of incapacity. As long as you are paying your premiums, you can claim as many times as you need to while you are still working. On the other hand, a Critical Illness policy will only ever pay out the once and your policy will end as soon as you have received the payment for your claim.
You can read more about the difference between in our Critical Illness vs Income Protection guide. Learning more about these two insurances is key to getting a policy best-suited to your needs.
Independent Protection Expert at Drewberry
Why Disability Insurance Matters - Client Stories...
Key Disability Insurance Policy Options
As well as choosing the level of cover you want, you will have several other decisions to make that allow you to tailor your policy to your needs including…
When you take out a policy you will need to set your deferred period. This is the period of time you must wait before you can begin claiming income benefits from your policy.
Deferred periods typically range from 4 weeks to 52 weeks, although some insures offer 1 week or even 1 day deferred periods, the latter of which can provide you with income almost as soon as you declare incapacity and stop working.
It usually makes sense to set this period equal to the length of time you receive full sick pay from your employer. Longer deferred periods can reduce the cost of your policy; it’s one of the key ways to adjust the price of cover.
There are several different types of premiums that are available to you that will affect how your policy is priced and how your premiums will change over time.
- Level Guaranteed Premiums are set at the beginning of your policy and will not change unless you decide to increase your level of cover later on or if you index link your policy so the benefit maintains pace with inflation (see below).
- Age Banded Premiums will increase as you get older to justify the increased risk of poor health as you age. These will either increase at a set rate or follow a tiered system that is preset by your insurer and cannot be changed.
- Reviewable Premiums are reviewed regularly – typically once per policy year – and adjusted due to a variety of factors such as your age, insurance premium tax, and wider economic factors such as interest rates and the financial performance of the insurer that year. As a result, clients can face steep and unpredictable increases with such premiums.
Our advisers will always warn clients applying for Disability Cover of policies with Reviewable Premiums. This is because policyholders have no control over how their premiums change. Increases can happen quite suddenly and a bad year can see a dramatic price hike.
Independent Protection Expert at Drewberry
Definition of Incapacity
The definition of incapacity will influence what your insurer defines as ‘incapacitated’.
‘Own Occupation’ is the best definition definition available and will pay a claim if you are unable to undertake your current job role, taking into account the physical and mental demands of your particular occupation when assessing whether or not you’re fit to work.
Other less desirable occupation definitions include Suited Occupation and Activities of Daily Living, both create somewhat of a grey area when it comes to meeting the definition. With such definitions they may require you to take on work in a different position which is something to be very wary of when applying for Disability Insurance.
At Drewberry, our experts will always recommend an Own Occupation definition of incapacity.
Index-linked cover will increase with inflation as your policy ages, ensuring that the buying power of your benefit does not depreciate over time. If you plan to keep your Disability Cover until you retire, this is an important option to add to your policy. Without it, you risk your benefits being unable to cover your essential expenses if you eventually need to make a claim.
Long Term or Short Term Disability Insurance?
If you are unable to work as the result of incapacity, a short-term policy will pay out benefits to you for a maximum of usually 1, 2 or 5 years. Once you have reached this limit, your policy will stop paying out for that condition even if you have not fully recovered.
With a long-term policy, there is no limit for how long you can claim benefits for. Provided you continue to meet your policy’s definition of incapacity, you can continue receiving monthly income until you reach your policy’s cease age.
Although short-term policies are typically the cheaper option, we often recommend choosing long-term protection where possible to ensure that you can still claim income if you need it.
In 2016, LV’s average claim length was 7 years and 7 months – long-lasting periods of incapacity are more common than many of us think. Development of a serious disability could put you out of work for years at a time and, without income to support you, you may find yourself in serious financial difficulty.
How Much Does Disability Insurance Cost?
The cost of Disability Insurance will vary depending on the details of your policy and your personal situation. Fortunately, Drewberry’s advisers know all the tricks of the trade to get you comprehensive cover while keeping premiums as low as possible.
Independent Protection Expert at Drewberry
Your Age and Health
The healthier you are, the lower your premiums will likely be. A big determining factor for the insurer when it comes to your overall health is your current age. This is because, as we get older, we are more susceptible to health problems and therefore more likely to make a claim.
Another detail about your health that plays an important role in the pricing of your policy is your smoker status. Smokers have a much higher risk of serious illness than those who don’t smoke, which is why habitual smokers can sometimes pay double the premiums of non-smokers for the same level of cover.
If you can go a full year without smoking and prove it by passing a continine test, you could benefit from lower premiums.
Finally, your medical history will play a role in your policy’s pricing. Insurers will likely to want to know about any recent and/or serious health conditions that you have suffered from.
You’ll need to discuss your medical history with your adviser when you take out Disability Insurance because these policies are fully medically underwritten. Your adviser will ask you a list of medical questions and fill in an interactive form on your behalf.
Independent Protection Expert at Drewberry
Risky occupations may limit the definitions of incapacity available to you, but they can also affect your premiums.
If your occupation puts you at heightened risk of injury or illness, such as working at heights, then your insurer will usually increase the cost of your Disability Insurance policy.
Base premiums on Disability Insurance for professionals who work at a desk all day will usually be cheaper than for manual workers because the job is less risky and involves a lower chance of injuring yourself on a daily basis. Also, there are more conditions that could stop you working in a manual role than in a desk-based role.
Your Policy Options
The decisions you make when deciding on the cover of your policy can result in your premiums either increasing or decreasing before your cover has even started.
Level of Cover
The level of cover is the first decision you will come across that will decide the price of your policy. While it may be tempting to choose the maximum amount of monthly cover you’re entitled to, it’s not always wise to do so.
Opting for the maximum cover will of course increase premiums, so consider instead examining your monthly expenditure to find a level of cover that matches closely with your essential financial commitments.
Setting a longer deferred is a great way to reduced your premiums. Longer deferred periods can make your Disability Cover a lot more affordable, but make sure that you do not sacrifice important cover for lower premiums.
The choice you make here will affect not only the initial cost of your policy, but how that price will change over time. The most common types of premiums you will find are guaranteed, age-banded and reviewable (see above).
Guaranteed premiums are usually the more expensive option at first, but they will stay the same for the entirety of your policy’s lifetime providing you don’t index link your policy or choose to increase your cover later on. Reviewable and age-banded premiums, however, will increase with time.
When your cover is increased to match the rate of inflation, your premiums will be increased as well. While most insurers will increase your cover and premiums by the same percentage (i.e. the rate of inflation), others will add a little bit extra onto your premiums with each inflationary increase you accept.
Compare Best UK Disability Insurance Companies
The best Disability Insurance providers in the UK offer Own Occupation cover and deferred periods that can match your employer provided sick pay entitlement.
Get Expert Disability Insurance Advice
If you would like to receive the best Disability Insurance quotes from the UK’s leading insurers then please don’t hesitate to get a quote below.
We provide free advice so, to discuss your policy options, you can pop us a call on 01273646484.
Independent Protection Expert at Drewberry