Long-Term Income Protection is designed to protect your income right up until your retirement if you can’t work due to any medical reason.
It can provide you with peace of mind knowing you can keep up with all your essential monthly expenditure, from your rent / mortgage to groceries and utility bills if you were too ill or injured to earn an income.
According to consumer group Which?, Income Protection is the one policy every working adult should consider.
As mentioned, Long Term Sickness Insurance will pay out for anything that medically prevents you from working, in a situation where you could never work again it would pay out your monthly benefit right up until your retirement date if necessary .
This is opposed to Short Term Income Protection, which will only pay out for a maximum of 1, 2 or 5 years per claim.
While a claim lasting 1, 2 or 5 years may sound like a long time, the reality is that it can still leave you exposed should you become so ill you can never work again. How would you cope in such a situation?
It is important to bear in mind that Liverpool Victoria’s average length of claim is 7 years and 7 months which is considerably longer than any short term budget Income Protection would pay out for.
The most comprehensive Income Protection covers you in your own occupation; this means you’ll be able to make a claim if something stops you from doing your specific job role.
Where budget Income Protection will only pay a claim for 1-2 years, a traditional long term policy will continue paying a claim until you either recover and return to work or until retirement if you can never work again.
There are very few standard exclusions on Income Protection although commonly you may find the following being excluded:
In certain cases, you may find that travel to countries or regions will be excluded if there is active internal conflict, political instability, an ongoing epidemic or it’s a country that the Foreign Office has advised against travel to.
Dealing With Pre-existing Medical Conditions
If you have any pre-existing medical conditions it can be a little more complicated. If you’ve suffered from a health condition in the past 5 years you will need to declare this in your application when taking out cover.
The insurer will review this medical information in more detail. Depending on how they view your current state of health they are likely to do one of three things:
However, with certain insurers there may be an opportunity to serve a period on the policy where you don’t receive any advice, medication or treatment for that condition and then potentially gain coverage for it. This will be entirely at the insurer’s discretion.
Where we have access to all the top UK insurers we can make sure you get the most competitive terms given your past medical history. If you have existing health conditions please do not hesitate to pop us a call on 02084327333 or email email@example.com.
It’s more common to be out of work due to accident or sickness than many people may realise. What’s more, as a nation, we’re underprepared for the challenges we’d face if we were out of work, particularly in the long term.
For instance, 14.7% of the over-55s questioned by Drewberry’s 2018 Protection Survey said that they’d needed to be out of work for at least 6 months due to illness or injury at some point during their career – equivalent to 1 in 6 people.
Meanwhile, the Office for National Statistics labelled more than 2 million people as ‘economically inactive’ due to long-term sickness in the 3 months to January 2019.
Clearly, the risk of illness or injury – and long-term illness or injury – is much higher than many people might think.
So what would happen if you couldn’t work?
In 2017, average household expenditure rose to £554.20 per week. Given that savings for 2 in 5 households equate to no more than £1,000, a sizeable proportion of households couldn’t maintain their normal expenditure for any more than 2 weeks if off work sick.
With ESA starting at £73.10 per week for the over-25s, government benefits make little dent in pressing expenditure needs if you can’t work.
Although other state benefits are available, these tend to be based on the severity of your disability and aren’t always easy to qualify for. In any event, they rarely can make up for total lost income in the event of accident or sickness.
Long Term Income Protection pays out monthly benefits to replace a proportion of your gross salary if an injury or illness prevents you from working. It will continue paying out until retirement if you can never work again.
There are three main policy factors to take into consideration when looking to buy Income Protection. These will impact the cost of cover significantly, so it’s worth understanding how these elements work.
There are three premium options to choose from when you set up Income Protection:
Your definition of incapacity is important because it refers to how ill or injured you need to be before you can make a claim.
There are three definitions of incapacity to consider when setting up Income Protection:
Arguably the most comprehensive definition of incapacity, this allows you to make a claim if your illness or injury prevents you from working in your specific job role.
For example, an architect with a hand injury wouldn’t be able to complete technical drawings and so would usually be able to make a claim.
Policies that use this definition of incapacity mean that in order to claim benefits, you have to be unable to undertake your current job role or any other job where you may have experience or education to perform.
So where an architect with a hand injury may not be able to do their own job, they may not necessarily be able to claim under a ‘suited occupation’ definition because have the skills and experience to do another job role suited to them.
This definition of incapacity means you can only claim if you’re so totally unfit to work that you can’t work in any occupation / perform a set number of tasks required at most basic jobs, such as signing your name or typing.
This definition of incapacity is the most difficult to claim on and in general we’d recommend it is best avoided.
You can claim as many times as you need to for as long as you need to on your policy while it’s still active.
This means if you’re unfortunate enough to suffer multiple illnesses or injuries throughout your working life that each stop you from doing your job, you’ll be able to claim repeatedly.
Independent Protection Expert at Drewberry
Neil is a client of Drewberry and took out an Income Protection policy with British Friendly. He was a member for 4 years before he needed to claim.
He became unwell and had pains in his stomach. After consulting his GP and having some further tests Neil was diagnosed with stage 2 Bowel Cancer and needed to make a claim.
As well as the three policy factors listed above, there are three personal factors that will also impact the cost of Long Term Income Protection:
In the below table, we’ve laid out the average monthly cost of a traditional long term income protection policy.
To work out the cost of cover, we’ve assumed:
Using our Income Protection Insurance quote tool we have compared all the top UK insurers and summarised the cheapest policy that matches the above criteria.
AIG is one of only a handful of Income Protection providers to offer cover for individuals with type 2 diabetes. It is also willing to offer diabetics guaranteed premiums and will not exclude diabetes in its policy, unlike other providers.
Aviva covers all policyholders with an own occupation definition of incapacity and, if you choose to return to work in a different occupation until you are well enough to return to your pre-incapacity occupation, Aviva will top up your reduced income with Back to Work Benefits.
British Friendly gives access to its Mutual Benefits program, which provides rewards such as vouchers for high street shops, discounted fitness tracking devices, emotional support services and online legal services.
Cirencester Friendly provides you with a range of additional benefits and services, including a hospitalisation benefit and a Friendly Voice service that provides you with a personal nurse that you can contact for advice and emotional support.
The Exeter is one of the few UK insurers that is able to offer own occupation cover to workers in higher risk occupations, although such policies only offer age banded premiums.
Legal & General comes with a free life cover element that pays out a maximum of 12 times your monthly benefit if you pass away while the policy is in force.
Liverpool Victoria offers free access to unique LV Doctor Services, which include fast access to remote GP services, second opinion services and private prescriptions for policyholders and their children up to the age of 16.
Royal London can include Fracture Cover, which pays out a lump sum of between £1,500 and £4,000 on top of any benefit you’d receive for being off work if you receive a fracture of a specified body part
Shepherds Friendly allows you to apply to suspend cover and premium payments under your plan for a minimum continuous period of 3 months and up to a maximum continuous period of 24 months. This is known as ‘Career Break’ option.
Vitality provides a unique offering. While the core of its policy is similar to other providers’ offering, it also offers a unique set of additional benefits to those who participate in the Wellness / Optimiser programs that can include policy discounts and rewards.
With so much to consider when it comes to setting up Income Protection, it’s important that you don’t miss anything out. That’s where the advice of an expert such as one of the team at Drewberry can be invaluable.
We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.
Long Term Income Protection comes with a number of potential pitfalls you really want to avoid.
If you need any help making sure you set-up the most suitable cover please do not hesitate to pop us a call on 02084327333 or email firstname.lastname@example.org.
Director at Drewberry
Sam was very helpful and kept me informed at all times. Brilliant service.