What is Income Protection? What Does it Cover?

• Income Protection Insurance protects your earnings against the risk of accidents and sickness that prevent you from working.
• For this reason, it’s also known as Accident and Sickness Insurance.
• The policy pays out a proportion of your income (between 50% and 70%) each month you’re off work after an initial deferral period.
• The income you receive is tax-free on a personal policy and paid direct into your bank account every month.
• This allows you to keep up with all your essential monthly expenditure while you focus on recuperating without having to worry about money.

Do I Need Income Protection?

There are a number of reasons buying Income Protection might be right for you, such as:

• Not receiving any / adequate sick pay from your employer
• Being self-employed / a company director and not getting any sick pay at all
• Not having sufficient savings to tide you over should you be off work in the medium- to long-term with an illness or injury
• Having a family to support who rely on you income to pay the bills and other regular expenses
• Being unable to survive on Employment and Support Allowance at £92.05 per week or Statutory Sick Pay at £118.75 per week.
• Making recent big changes to your life, such as starting / growing your family, buying a home / moving home / taking on a new or larger mortgage, or getting promoted / moving to a job with a higher salary.

Watch the video to see why award winning personal finance blogger Mrs Mummypenny took out Income Protection to protect her earnings.

How Much Does Income Protection Cost?

It’s hard to say exactly how much Income Protection costs for each individual because it depends on so many different factors. For instance, when setting up a new policy you’ll need to consider:

• Your age
  The older you are when you take a policy out, the more premiums will cost due to your increased of claiming as you age
• Your health
  If you have any pre-existing medical conditions, or a family history of certain conditions, the insurer may increase premiums to cover the risk or simply exclude that issue from coverage entirely.
• Occupation
  As some occupations are riskier than others the cost of your plan will vary depending on your job duties. The lowest-risk occupations are office-based roles and the riskiest are those involving lots of manual work or those roles where doing that job will be hard even with a minor injury, such as flying a plane.
• Your smoker status
  Smokers are more susceptible to various health problems, including cancer and heart / circulatory disease and most insurers charge smokers higher premiums. Going nicotine-free for 12 months could potentially halve the cost of Income Protection.

• Your level of cover
  The amount you’ll require as a payout from the insurer each month to keep up with your essential outgoings. The higher your level of cover, the greater your premiums.
• Your cease age
  The age at which you want your policy to finish — typically this will be your expected retirement date.
• The deferral period
  How long you can wait before the insurance will kick in and pay out after you’re signed off work sick, with a longer the deferral period lowering the cost of your insurance.
• The claims period
  How long you can claim for should you fall ill, which could be a maximum of 1, 2 or 5 years for short-term policies or right up until your retirement age for long-term Income Protection.
• Indexation
  The prices you pay in shops don’t stand still — think how much more a pint of milk costs now compared to 20 years ago — so you have the option for your Income Protection benefit to rise in line with inflation so you’re never caught short by rising prices. This will mean your premium rises as well, but to compensate so will your benefit each year along with inflation.

Example of the Cost of Income Protection

In the table below, we’ve laid out how much Income Protection costs for manual workers (using a plumber as an example) and for an office worker (using an accountant) of three different ages.

To calculate these Income Protection quotes we’ve made a number of assumptions, including:

• The individual is applying for an £1,500 a month benefit
• The individual wants guaranteed premiums that will never increase (unless they’ve opted to index-link the policy)
• They want cover up to the age of 65 that will pay out long-term, rather than for just 1, 2 or 5 years
• They have a 4 week deferred period
• They’re a non-smoker
• Cover is on an ‘own occupation’ basis, so they’ll get a payout if they’re medically unable to do their own specific job.

The figures in the table above represent the ‘gold standard’ of Income Protection, a fully comprehensive Accident & Sickness policy covering right up until your retirement.

As you will see below there are a number of ways you can lower the cost of premiums and achieve cheaper Income Protection without much compromise on coverage.

You are best working with a specialist adviser to do this as some options have a larger impact on the premium than others. If you would like to discuss further please don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

How Do I Get Cheaper Income Protection?

There are multiple ways to reduce the price of cover and get low-cost Income Protection premiums. If you can’t afford a fully comprehensive cover, you can adjust the policy in four ways to achieve cheaper premiums.

These four steps to low-cost Accident & Sickness Insurance are laid out briefly below:

• Only cover the essentials
• Extend your deferral period
• Reduce the length of cover
• Opt for a limited pay-out period

1. Only Cover the Essentials

People often look to cover the maximum they’re entitled to cover based on their salary, which can increase the cost of Income Protection unnecessarily. This is as they try to closely mimic the net pay they receive in their pocket each month.

However, it’s important to realise that Income Protection is for a worst case scenario and therefore it makes sense just to cover the essential payments that would need to be made each month, such as mortgage payments, food costs, utility bills and council tax.

Other less vital outgoings could potentially be reduced or suspended, plus you won’t have commuting costs if you can’t work due to illness or injury.

So an individual looking for £1,500 of cover, as in the table above, could potentially try looking at £1,250 of cover instead for a lower-cost Income Protection without sacrificing much in the way of monetary benefit each month.

2. Increase the Deferral Period

It is also very common for people to automatically select a deferred period of 4 weeks, so their policy will start to pay out after a month off work.

This is usually the default on most policies, so clients tend to select it without considering any other deferral periods that may work better for their needs while achieving cheaper Income Protection premiums.

A longer deferral period can make a significant difference to the price of premiums. Consider whether you get sick pay from work or have any savings you could live off if you fell ill.

If you could extend your deferral period to 13 weeks, you enter a real ‘sweet spot’ and can see a significant reduction in the cost of Income Protection — potentially a reduction of more than 40%!

3. Reduce the Policy Cease Age

Realistically, when do you think you’ll be able to retire?

It’s true that the State Pension Age has increased — many younger clients will now be 68 before they can get their state pension — but will you be able to retire before this based on other provisions you’ve made, such as private pensions?

If you think you’ll be able to retire earlier, you can make Income Protection cheaper by lowering the policy cease age. This is because the risk of illness or injury increases notably after the age of 60, so reducing the cease age cuts a lot of that risk to the insurer.

Cutting your cease age, say to 60, can significantly lower the cost of Income Protection.

4. Opt for a 2 Year Payout

The options in the table above are for a policy that doesn’t limit how long the plan could pay out for (i.e. it could pay out right up until the age of 65 if the policyholder wasn’t well enough to return to work).

However, it is possible to choose an option with a maximum payout length of 1, 2 or 5 years.

Although multiple claims of 1, 2 or 5 years can usually be made for different medical conditions it does mean the insurer would cut off the benefit after 1, 2 or 5 years of claiming for the same condition.

For this reason the insurer can afford to lower your Income Protection premiums, but you are less well protected as a result if your illness extends for longer than say 2 years.

Low Cost Income Protection Example Premiums

To pull these Income Protection quotes we’ve made a number of assumptions, including:

• The individual is applying for an £1,250 a month benefit
• The individual wants guaranteed premiums that will never increase (unless they’ve opted to index-link the policy)
• They want cover up to the age of 60 that will pay out on a short-term basis, for 2 years
• They have a 13 week deferred period
• They’re a non-smoker
• Cover is on an ‘own occupation’ basis, so they’ll get a payout if they’re medically unable to do their own specific job.

Compare Top Budget Income Protection Insurers

Policy Details & Additional Benefits
About The biggest insurer in the UK, Aviva is a well-known and trusted household brand Claims Statistics In 2018, Aviva paid 87.3% of all Income Protection claims Additional Benefits Best Doctors Access to a network of the world’s leading specialists and consultants for help with physical health issues Bupa Anytime Healthline A 24 / 7 helpline staffed by Bupa nurses to assist with a variety of medical concerns Support Plus Short-term face-to-face or telephone counselling and up to three face-to-face physiotherapy sessions Hospitalisation Benefit £100 per night for up to 90 nights if hospitalised during your deferred period
About British Friendly is a mutual society, which means it is owned by its members and run for the benefit of you, the policyholder. Claims Statistics In 2019, British Friendly paid 94% of Income Protection claims Additional Benefits Remote GP Service Telephone / video GP appointments on demand Mutual Benefits Access to physiotherapy sessions and counselling services Second Medical Opinion Service Access a second medical opinion from leading specialists if you’re diagnosed with an illness Death Benefit Lump sum of six times the monthly Income Protection benefit if you pass away during the policy term
About Cirencester Friendly is a mutual society, which means it is owned by its members and run for the benefit of you, the policyholder Claims Statistics In 2019, Cirencester Friendly paid 95.7% of Income Protection claims Additional Benefits RedArc Friendly Voice Nurse support service providing health and guidance on physical and mental health issues
About The Exeter is a mutual society, which means it is owned by its members and run for the benefit of you, the policyholder Claims Statistics In 2018, The Exeter paid 93% of Income Protection claims Additional Benefits Remote GP Service Up to four telephone / video GP appointments on demand per year Mental Health Support Access up to six online video / telephone psychotherapy sessions per year Physiotherapy Up to six online video physiotherapy sessions with a qualified physiotherapist per year Second Medical Opinion Access a range of medical specialists either face-to-face or over the phone to review a diagnosis / suggest alternative treatments
About Holloway Friendly is a mutual society, which means it is owned by its members and run for the benefit of you, the policyholder Claims Statistics In 2019, The Exeter paid 94% of Income Protection claims Additional Benefits Mental Health Support 24 / 7 mental health support telephone service, including online resources such as cognitive behavioural therapy resources
About Legal & General is one of the UK’s biggest insurers. It’s a well-known household name and has been providing life protection, such as Accident & Sickness Insurance, for decades. Claims Statistics In 2018, Legal & General paid 95% of all Income Protection claims. Additional Benefits Mental Health Support Supplied via RedArc Nurse Support, you’ll get help and guidance on mental health issues, including arranging counselling where clinically appropriate at no extra cost Second Medical Opinion Access a range of medical specialists either face-to-face or over the phone to review a diagnosis / suggest alternative treatments Hospitalisation Benefit Receive 1/30th of your monthly benefit, up to £150 per night, for up to 90 nights if hospitalised for more than 7 nights during your deferred period
About Liverpool Victoria is a UK household name that offers both general and life insurance, including Income Protection Claims Statistics In 2018, Liverpool Victoria paid 95% of all Income Protection claims Additional Benefits Remote GP Service Up to five telephone / video GP consultations per year Member Health & Wellbeing Line 24 / 7 unlimited access to qualified doctors and nurses available to help you with a variety of health queries Mental Health Support Up to five remote sessions with a qualified mental health professional Physiotherapy Up to five remote sessions with a qualified physiotherapist Second Medical Opinion Service Access UK-based specialists with video or telephone consultations to discuss a diagnosis and suggest alternative treatments Death Benefit Receive a lump sum of £5,000 if you pass away during the first 4 years of the policy, rising to £10,000 thereafter
About Royal London is a well-known insurance brand offering a range of life insurance products, including Income Protection Claims Statistics In 2018, Royal London paid 72.2% of all Income Protection claims Additional Benefits RedArc Nurse Support Service Offering help and guidance on a range of physical and mental health issues Second Medical Opinion Service Access UK-based specialists with face-to-face consultations to discuss a diagnosis and suggest alternative treatments Hospitalisation Benefit £100 per night for up to 90 nights if hospitalised for more than 6 consecutive nights during your deferred period
About Shepherds Friendly is a mutual society, which means it is owned by its members and run for the benefit of you, the policyholder Claims Statistics In 2019, Shepherds Friendly paid 95.8% of Income Protection claims Additional Benefits Mental Health and Physiotherapy Support Return to work support following a claim might involve mental health assistance or physiotherapy to speed up your recovery time Death Benefit £6,000 paid in 6 monthly instalments if you pass away during the policy term
About Vitality is a unique insurer in the protection sphere in many ways, including in its offering of rewards and benefits for staying healthy Claims Statistics In 2018, The Exeter paid 97.8% of Income Protection claims Additional Benefits — Vitality offers an array of additional benefits as rewards for staying healthy (e.g. partaking in health checks and physical activity), such as discounted smart watches, free hot drinks from high street coffee shops and other discounts.

Get Budget Income Protection Quotes & Specialist Advice

With so many factors to consider when it comes to getting cheap Income Protection — and given most people want to achieve this without compromising on cover — it can be a bit of a minefield to start tinkering with a policy yourself.

This is especially the case when you consider the multitude of insurers on the market, each with their various pros and cons. Choosing the right one for your needs is essential, especially when it comes to your occupation, as certain insurers cater for those in manual roles while others look to

That’s where we come in. Drewberry has specialists on hand to provide a full advice service so you can be sure you’re not only getting the best deal but also the most comprehensive cover at the same time.

Why Speak to Us…

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.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated specialist from start to finish
  You will speak to a named specialist with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 4131 and growing independent client reviews rating us at 4.92 / 5.
• Gain the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.