When it comes to Income Protection Insurance people often overestimate how much it will cost to put a policy in place. This misconception is one that doesn’t seem to be going away either, with 75% of people believing that the cost has risen even further as a result of Covid-19.
The reality is, putting a policy in place is cheaper than you might think. Calculating the cost of income protection insurance will heavily depend on your budget and the policy options you choose.
It’s not just Income Protection Insurance either, our latest survey found many think that other types of personal protection such as, Health, Critical Illness and Life Insurance are also more expensive than they really are.
What Is Income Protection Insurance?
Income Protection Insurance can protect up to 70% of your gross annual earnings and ensure that if you are unable to work due to accident, sickness or redundancy, you can still keep up with your regular outgoings such as your mortgage/rent and bills.
- Choose from policies that pay out after as little as 1 week of illness or injury.
- Protect your income for the rest of your working life which can be right up until your expected retirement age.
- Get peace of mind knowing that leading insurers such as Zurich & Vitality paid out 96% of Income Protection Insurance claims in 2019 👍
With this in mind it’s no surprise that consumer champion Which? recommends Income Protection as the one protection policy every working adult should consider.
How Much Does Long Term Income Protection Insurance Cost?
It’s important to get Income Protection cover that’s tailored to your individual circumstances and needs, as what’s right for one person won’t be what’s right for another. Because of this the cost will vary depending on a number of personal and policy factors.
To help give you an idea of how much a standard long term income protection policy can cost, we have calculated the premiums for a 32 year old who:
- is in a low risk office based job
- has no pre-existing health conditions
- is a non-smoker
- wants long term cover that will protect them up until their retirement at age 65.
We have compared Income Protection Insurance quotes from all the top UK insurers including Vitality, Aviva and Legal and General and used the cheapest option for each example.
Personal Factors Affecting The Cost Of Income Protection Cover
There are a number of factors that can affect the amount you pay for Income Protection Insurance. Some we have control over and others we don’t, and some are more obvious than others.
Cost Increases With Age
It’s a sad fact of life, but none of us are getting any younger and unfortunately this can impact the amount we pay for protection.
It might seem unfair as we can’t prevent the ageing process, however the older we become the greater health risks we face. So to offset this higher risk, insurers increase the cost of premiums for older people.
Using the same policy options, with the same provider from above, the cost of Income Protection Insurance for our 32 year old goes from £33.24 to £60.44 for a 42 year old.
Smokers Can Pay More For Income Protection
Due to the associated health risks with smoking, some insurers will charge you more for Income Protection. It’s important to understand what insurers class a ‘smoker’ as too.
It might be surprising, but even if you don’t smoke cigarettes you could still be faced with higher premiums if you vape or use nicotine patches. This is because for most insurers a smoker is classed as anyone who has used nicotine in the last 12 months.
If I Give Up Smoking Can My Income Protection Premiums Be Reduced?
The good news is, if you can prove you have given up and haven’t consumed nicotine in the last 12 months, most insurers will then class you as a ‘non-smoker’ and lower your premiums.
Pre-Existing Health Conditions Can Affect Your Premiums
When it comes to putting an Income Protection policy in place, insurers will look at your medical history to determine what cover they can offer, if any, and at what cost.
If you do have a known pre-existing medical condition which is life-limiting or that affects your health, providers will tend to:
- Provide cover but with increased premiums
- Exclude the condition you suffer from but offer discounted premiums
- Cover you without any exclusions and no premium loading.
If you have a pre-existing condition it’s best to speak with an expert, such as one of the team here at Drewberry to ensure you’re getting the best policy for your circumstances.
You can pop us a call on 02084327333 or email firstname.lastname@example.org.
Your Job Could Increase The Cost
Some jobs are classed as being higher risk than others by insurers. For this reason premiums will vary depending on what you do.
For example those working in construction would be deemed as a higher risk than those who are in an office based role and would therefore pay a higher premium.
This is why it is so important to review the whole market. Some friendly societies specialise in higher risk occupations and can offer more affordable premiums than some of the mainstream providers who may favour low risk office based roles.
Which Jobs Are Classed As High Risk?
There are a number of jobs which are classed as high risk and that will see the cost of premiums increase. To give you an idea of which roles these are we’ve put some examples below:
- Offshore Workers
This isn’t an exhaustive list by any stretch so it is always best to check with a provider before taking out a policy or by getting advice from an independent financial adviser such as one of the team at Drewberry.
You can pop us a call on 02084327333 or email email@example.com.
Dangerous Hobbies Could Affect The Cost Of Premiums
Just like high risk jobs, hazardous hobbies such as free solo climbing and gliding, can also affect the amount you pay for Income Protection.
This is because these types of extreme activities will put you in a higher risk category in terms of suffering injury. As a result providers need to off set this risk by increasing the price you pay.
Hazardous sports which you can expect to increase your premiums include:
- Big wave surfing
- Off-piste skiing
- BASE jumping
- Free climbing
- Scuba diving
- Hand gliding
Not every insurer will view hazardous sports in the same way, so to make sure that you have the most appropriate cover in place its best to speak with an expert such as one of the team here at Drewberry.
Pop us a call on 02084327333 or email firstname.lastname@example.org.
Policy Factors Affecting The Cost Of Income Protection
When it comes to putting Income Protection Insurance in place, there are a number of policy factors which will also affect the amount you’ll pay for your cover.
The Level Of Benefit Needed
Just like with most things in life, you get what you pay for, it’s no different with Income Protection. The higher the claim benefit you need, the higher your premiums will be.
How Much Income Protection Cover Do I Need?
This ultimately depends on your financial circumstances. As mentioned, you can cover between 50% and 70% of your gross earnings, while some insurers allow you to protect a higher benefit in monetary terms than others.
Think carefully about how much money you’ll need each month. Key essential outgoings most of our clients seek to cover include their:
- Mortgage / rent
- Utilities and other bills
- Council tax
- Loans / credit card repayments
- Childcare costs
- Weekly food shop.
It is important when deciding on a level of cover that you don’t just opt for the maximum and instead consider what your outgoings would look like if you were unable to work.
Transport and costs associated with going out are likely to disappear if you are too ill to work so it is important to align your level of cover with your core outgoings to avoid higher premium costs.
For example if you wanted to cover £1,500 a month, your premiums would be less than if you wanted to cover £2,000 a month.
If you already know how much cover you require you an use our calculator to compare quotes from all the leading UK insurers including Aviva and Vitality 😊
Opt for Budget Income Protection To Reduce The Cost
Traditionally income protection was designed to protect your earnings for your entire working life however some providers now offer budget policies that will only pay a claim for a maximum of 1-2 years.
Given the risk is significantly lower when only paying a claim for a couple of years you can significantly reduce your premiums with budget cover.
It is important to note that the average claim length with leading insurer LV= is 6-7 years which is significantly longer than that covered by a short term policy.
The Longer You Need Cover The Higher The Premiums
The cost of Income Protection Insurance will be affected by the length of time that you need cover for.
For example if you only need a policy to the age of 55 your premiums would be cheaper than someone else who wants a policy to cease at age 65.
If you are likely to have significant pension provisions or will have paid off your mortgage you can consider an earlier cease age to reduce your premiums.
Lengthening Your Deferred Period Can Significantly Reduce Your Premiums
As mentioned above, one factor that will affect the cost of Income Protection premiums is the deferral period you select when taking out cover.
The deferred period is the length of time you need to be ill before the insurance starts paying a claim. Deferred periods can range from 1 week to over a year.
Most people will align this with their sick pay or the amount of savings they have.
Taking Your Savings Into Account
If you have savings you could use these to reduce the cost of your Income Protection premiums.
The longer the deferral period you select the cheaper your premiums will be, so if you know you have enough savings to last you 8 weeks if unable to work, you could use those instead of having your policy pay out straight away.
Consider Your Sick Pay Entitlement
Not everyone is lucky enough to get sick pay from their employer. However if you are, it’s worth understanding just how much you get and for how long as this could also help you to reduce the cost of your premiums.
For example, if you get full sick pay for 13 weeks, you could put a 13 week deferral period in place and have your insurance benefit pay out once your sick pay has stopped.
If you know your sick pay or savings would cover your regular monthly outgoings for 8 weeks, you can select this as your deferral, however if you know that you would need your claim to pay out straight away you could select a shorter period instead.
Guaranteed Premiums Are More Expensive
When selecting Income Protection Insurance there are three different premium types to be aware of. The price you pay for a policy will vary depending on which you select.
- Age Banded Premiums
These premiums will increase with age, so the older you get the more you will pay. Initially they can seem like a cost effective option, however they can increase by over 5 times as you age.
- Guaranteed Premiums
Your monthly premiums remain fixed over the entire life of a policy so you know exactly how much you will be paying. Although these premiums will seem more expensive initially, over the life of a plan it can work out less costly.
- Reviewable Premiums
The insurer has the right to change monthly premiums over time. Although initially these premiums are cheaper, there is a risk that the monthly cost may become too high as you get older or if the insurer experiences a notable peak in claims in a given year.
Can I Include Redundancy Insurance?
If in the unfortunate event you were to be made redundant, Redundancy Insurance can provide you with a regular monthly income for 12, 18 or 24 months.
This is to help you keep up with your monthly outgoings such as your mortgage/rent and bills until you find yourself a new job.
Some providers allow you to bolt on unemployment insurance for an additional cost. The cost will vary considerably depending on your occupation and industry.
Has Covid-19 Affected The Cost Of Income Protection?
As we found in our latest survey many UK workers believe the pandemic has made Income Protection more expensive.
Although some insurers have placed Covid exclusions on new policies we have not seen the cost of Accident & Sickness Insurance increase as a result of the pandemic.
On the other hand we have seen all Unemployment policies be removed from the market.
WIll My Premiums Increase If I Need To Claim?
Unlike general insurance policies like car and home insurance claiming on an Income Protection policy will not increase your premiums.
You are able to claim on your policy as many times as you need throughout your working life without it impacting your premiums.
Who Are The Top UK Income Protection Insurers in 2023?
When it comes to Income Protection Insurance there are a range of providers and policies to choose from which of course will bring varying costs.
However rather than focus on getting the cheapest deal, it’s important to look for cover that gives you the best protection and that meets your particular circumstances.
For a comprehensive review of the best Income Protection insurance you can read our expert guide comparing all the leading insurers side by side.
Where some insurers are more competitive with higher risk occupations or covering certain medical conditions we compare all the leading insurers when finding you the most cost-effective cover for your needs. This will include:
Our whole of market access and experience offering advice mean we can match you with the best provider and the best policy.
It is important to obtain quotes from all of the top UK providers when doing your research as premiums can vary considerably based on your age and your current circumstances.
To compare the top UK providers in seconds use our handy Income Protection insurance quote tool →
Top Free Additional Benefits You Can Expect With Income Protection
Although there are a number of additional options which can add to the cost of Income Protection the majority of providers now offer a number of FREE additional benefits which sit outside of your core cover.
Its important when looking at the cost of your premiums what other benefits are included as these could add real value to your policy. For example some additional services include:
- 24/7 Video GP Service
- Online Prescription Service
- Nurse Staffed Medical Advice Helpline
- High Street and Fitness Discounts
Compare Income Protection Quotes & Get Expert Advice
With so many factors and a lot of different terminology at play, it can be tricky to do an accurate like-for-like comparison between providers.
When covering something as important as your income it’s essential to understand what you’re buying. Making a mistake could have expensive consequences.
Why Speak to Us?
We started Drewberry™ because we were tired of being treated like a number.
We all deserve a first class service when it comes to issues as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.
For help and fee-free expert advice, don’t hesitate to give us a call on 02084327333 or email email@example.com.