Answered by Andrew Jenkinson
The deferred period for Income Protection explained
Firstly, the deferred period (sometimes known as an excess period, waiting or deferment period) is the period of time for which you need to be off work for the policy to start ‘accumulating benefit’.
For example, with a 4 week deferred period the plan would start accumulating benefit after 4 weeks and make its first payment after 8 weeks (for the 4 week period preceding).
It is very important to set an appropriate excess period as the monthly premiums can come down significantly as this period is extended. Furthermore, if you are still receiving an income from your employer most plans will not payout during this period, even if you have surpassed the deferment period.
Deferment Period for Accident and Sickness Cover
The typical deferred period for accident and sickness cover (whether for income protection or payment protection) will depend on whether you receive any period of full sick pay from your employer and your current level of savings.
If you employer were to pay, say, two months of full sick pay it usually makes sense to set the waiting period equal to this length of time. Upon making a claim the insurer will assess your income at that time and will not usually start paying out until you are no longer receiving full pay from your employer.
Additionally, if you have a level of savings that could be used to support yourself for a period of time should you have to cease working due to illness or injury then it may make sense to extend the deferred period in order to bring the monthly premiums down. With income protection it is typical for the premiums to come down by over 30 per cent if the excess period is extended from 4 to 13 weeks.
Deferment Period for Unemployment Cover
When it comes to setting the waiting period for unemployment protection it is important to consider how much redundancy pay you would receive and the level of savings you have.
If you would have enough capital to survive for a period of time due to redundancy pay (usually paid as a lump-sum upon being made redundant) or savings then it may make sense to extend the deferred period in order to bring the monthly premiums down.
For more information please see the guide: Setting your deferred period.
Frequently Asked Income Protection Insurance Questions
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