In theory, you can take out as many Income Protection policies as you wish. However, when it comes to making a claim, it’s not about the number of policies you have in place – it’s about the total level of cover available to you.
It can be tempting to over-insure by taking out two Income Protection Insurance plans (therefore covering 100% of your earnings), but any claim will limit you to a percentage of your total gross income – making sure you don’t exceed the maximum allowable for each insurer.
Should a claim arise, an insurer will ask if you have any continuing income – either from your job or any other insurance policies. If you have continuing income, the insurer will reduce your payout so that you’re not receiving more than the maximum they allow.
Remember: insurers will only allow you to receive a certain proportion of your pre-incapacity earnings whilst out of work. Essentially, insurers need you to have an incentive to recover and go back to work.
Let’s say you have two Income Protection plans. Each plan covers 50% of your income, and both insurers have a maximum limit set at 50% of your total income. In this case, only one of your policies would actually pay out – making the premiums you paid for the second plan a waste of money.
On the other hand, if you only insure 25% of your salary with each insurer (resulting in total cover of 50% of your income) then there would be no issues at all.
Generally speaking, Income Protection policies cover between 50-70% of your gross (taxable) earnings; however this does depend on your unique situation and the insurer you go to. It’s important to note that any benefit payment from a personal Income Protection policy is paid tax-free. Read more about Income Protection cover levels.
For those with a lower level of income, your gross and net earnings are very similar (given the personal tax allowance). This can cause issues gaining enough Income Protection cover as nearly all insurers base the level of cover on gross rather than net salary. This leads people trying to take out two Income Protection policies to cover their outgoings.
If this applies to you, give us a call on 02084327333 or email help@drewberry.co.uk to find out your options, as there are a limited number of plans that don’t take earnings into account, just so long as you’re working more than 16 hours per week.
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