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Income Protection is an insurance policy which pays you a replacement income if you can’t work due to accident or sickness. For this reason, it’s also known as Accident and Sickness Cover.
It provides loss of earnings protection for you and your family if an illness or injury keeps you from doing your job.
Most people would struggle to survive on minimal government benefits. Moreover, few have sufficient savings to see them through a real health emergency. For many people, Income Protection can therefore be an invaluable protection.
SPECIALIST OPINION 🤓
According to consumer group Which?, Income Protection is the one policy every working adult should consider.
To work out the cost of Income Protection, insurers take into account both policy and personal factors.
These are options you choose when buying a policy. Policy factors impact how comprehensive your Income Protection is and therefore determine premiums.
You have control over most of these factors and can therefore use them to adjust your premiums if necessary. They include:
The monthly benefit you’ll receive each month if you claim. Insurers will cover up to 70% of gross income. The greater your level of cover, the higher your premiums.
How long the policy runs for. Usually, you set it to match your expected retirement age. The older the cease age, the higher your premiums.
The waiting period between you falling ill and being unable to work and the insurer paying your first monthly benefit. Longer deferral periods reduce premiums.
How long you’ll receive monthly payouts if you fall ill.
Short-Term Income Protection is a cheaper, budget option. It pays out for up to 1, 2 or 5 years per claim and then stops, even if you’re still too unwell to work after this period.
Long-Term Income Protection, meanwhile, pays out right up until retirement if you can’t work again. This will mean higher premiums but offers you more comprehensive protection.
When you index your benefit, your monthly payout rises each year in line with the growing cost of living (inflation). This means the purchasing power of your monthly benefit stays the same over time.
To compensate for the payout rising, your premiums also rise alongside it.
When you buy Income Protection, you pay via monthly premiums. There are two types of premiums to choose from:
However, guaranteed premiums aren’t automatically the best option for everyone. For example, manual workers often get better deals with age-banded premiums, so don’t discount anything until you’ve considered all your options.
IMPORTANT NOTICE 🧐
Beware reviewable premiums. These are common on inferior policies, such as Payment Protection Insurance (PPI). Here, the insurer can review your premiums upwards as it sees fit, perhaps if it has a spike in claims in a given year.
Also impacting on the cost of cover are various personal factors. These are specific to you and you mostly cannot change them. They include your:
As we get older, we become more susceptible to various illnesses and injuries. As such, you’ll face higher Income Protection costs the older you are when you buy a policy.
Some jobs are riskier than others. Office workers face lower risks of accident or injury in their daily working lives than firemen or scaffolders, for example. Premiums reflect the level of daily risk you face.
Smokers are more likely to develop serious illnesses such as cancer and cardiac problems. The detrimental health impact from smoking means most — although not all — insurers charge smokers more for cover.
If you have a pre-existing medical condition, or a family history of certain conditions, the insurer may increase premiums to cover the risk or simply exclude that issue from your policy.
Even when all personal and policy factors are the same, the Income Protection quotes you get can vary considerably between insurers.
Some insurers are more willing to take on risk than others. For example, many friendly societies are better for those in manual occupations compared with other providers.
That’s why it’s important to compare Accident and Sickness Cover from across the whole market to ensure you’re getting the best deal.
In the table below, we’ve highlighted the average cost of Income Protection for a manual worker (a plumber) and an office worker (an accountant) of three different ages.
The cheapest insurer for the accountant wasn’t the same as the insurer that worked out best for plumbers. Each provider considers occupations and other risk factors differently.
To get these quotes we’ve assumed each individual is:
Age at Application | Age 25 | Age 35 | Age 45 | Occupation | Cost of Premiums per Month |
|---|---|---|---|
Office Role | £13.18
| £19.78
| £39.40 |
Manual Role | £17.25 | £23.39 | £44.23 |
IMPORTANT NOTICE 🧐
The premiums in the table are for fictional individuals. Your circumstances will likely vary which could mean your own premiums differ from those shown.
Now you know what impacts the price of Income Protection, the most important part is comparing premiums from across the whole market to ensure you get the best deal.
Our Income Protection quote comparison tool pulls results from the top 10 UK insurers.
This makes it easy to calculate your potential monthly premiums in less than a minute. Alternatively, simply pop your details into the form below to get started.
If you need help don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.
Yes, if you know how — or have an adviser who does — there are a number of ways to keep the cost of Income Protection down. This lets you get the cover you need that fits your budget.
IMPORTANT NOTICE 🧐
Some ways to cut premiums impact how comprehensive your plan will be. To get the right balance it’s important to speak to an independent protection specialist. If you need advice call us on 02084327333 or email help@drewberry.co.uk.
When will you likely be able to retire?
It’s an important question, as your cease age determines Income Protection premiums. The longer you need the policy, the higher your premiums will be due to the greater risk of an Income Protection claim as you age.
If you think you can retire slightly earlier, you could reduce your policy cease age to lower premiums.
However, only consider this if you’ll realistically be financially ready to retire earlier. With many the state pension age now standing at 67 or later for many, if you were in a long-term claim with a lowered cease age your policy would stop paying out before you can access your state pension.
Short-Term Income Protection is also known as low-cost or budget cover. While opting for a short-term policy — which will only pay out for 1, 2 or 5 years per claim — keeps premiums down, you risk your income drying up after this period if you’re in a long-term claim.
Short-term cover means that, even if you were so ill you could never work again, your policy stops paying out once your claims period is up.
How much do you need coming in each month to cover the basic necessities?
You’ll obviously need cover for important bills such as rent / mortgage, utilities, groceries, finance repayments, council tax and other essential outgoings. However, could you survive on slightly less money each month by cutting back on non-essentials if you were off work sick?
If you crunch the numbers and find that you can afford to get by on a lower proportion of your income, you could reduce the monthly payout from your policy to save money.
How long could you manage without an income before you’d need your policy to kick in?
If you have savings to live off or get sick pay from work, you could stretch your deferral period out to save money. The longer your deferral period, the lower the cost of your insurance.
A 13 week deferral period, for instance, could save up to 50% on premiums compared to a policy that pays out after 4 weeks.
Smokers pay more for Income Protection with most insurers. This is to compensate for the fact that they’re more likely to become ill, and more seriously ill, than non-smokers.
However, not every insurer hikes premiums if you smoke. Some are ‘smoker neutral’, so they treat smokers and non-smokers the same. Your adviser can direct you to such an insurer if you do smoke and it’s the right provider for you.
Alternatively, if you quit and go nicotine-free for 12 months, following a simple cotinine test (which detects chemicals from the breakdown of nicotine in your body) your insurer could cut your premiums.
Some insurers may offer low premiums because they are not providing own occupation cover. This is often the case for manual workers in particular.
At Drewberry, regardless of our clients’ jobs, we feel that it’s vital your insurer does cover you on an own occupation basis. This ensures your policy pays out if you can’t do your own specific job.
However, some insurers offer cover on a suited occupation basis. Here, before paying out, the insurer firstly assesses your health. If the insurer thinks you’re fit to do another job your skills and experience suit you to, the insurer won’t pay the claim.
Suited occupation cover can be fairly subjective and we therefore rarely recommend it. We tend to make sure the Income Protection we offer is own occupation cover. That way, clients can rest easy knowing they have the most comprehensive protection.
The cost of Income Protection can vary considerably depending on your personal circumstances and the choices you make regarding your policy.
There are a number of pitfalls to avoid. This includes policies with lesser definition of incapacity (for example, suited occupation cover), choosing premiums which can rise over time as well as paying over the odds for your plan if you don’t research the whole market.
Fortunately, if it’s all getting a bit confusing and you’d like some help, the team at Drewberry is here to help.
When it comes to protecting yourself and your finances, you deserve first-class service. Here’s why you should talk to us:
For help and fee-free advice, pop us a call on 02084327333 or email help@drewberry.co.uk.
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