Payment Protection Insurance

Helping you protect all the things you work hard for...

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Drewberry™ provide pensions, investment and insurance advice for Money to the Masses readers throughout the UK.

 

Why Payment Protection Insurance?

 

Provides you with a tax free monthly income you can rely on should you suffer an accident, sickness or forced unemployment.

 

Designed to cover your core monthly financial commitments such as your mortgage/rent, bills and food.

 

Income Protection is the one protection policy every working adult should consider. Which? Money 2013

What is it for?
 

What does Payment Protection cover?

Accident & Sickness

With payment protection you can cover the risk of having to take time off work due to illness or injury, thus ensuring you can keep up with your repayments..

Unemployment

The vast majority of PPI plans also have the option to cover yourself against the risk of forced redundancy. Some plans can just cover unemployment only.

Important! As most PPI plans can only payout for 12 months it makes sense to consider adding critical illness or taking out a long-term policy to cover the risk of serious illness or injury.

What does it cover?
 

How does PPI work?

Stage 1:
You cease working due to Accident, Sickness or Unemployment.

Stage 2:
You make a claim with the insurer (including your GP note / redundancy letter).

Stage 3:
The insurer starts paying out a monthly benefit after your initial deferred period.

Stage 4:
The insurance plan pays out until you return to work or reach the maximum payout length of your policy.

How does it work?
 

Do I need Payment Protection?

When deciding if payment protection is worthwhile it makes sense to know the facts about what risks we all face:

The Incapacity Risk:
1 in 10 people have been unable to work due to illness or injury for +6 months (The Guardian/Unum Survey, 2011).

The Unemployment Risk:
1 in 5 people have been made redundant at some point during their working life (Met Life, 2012).

The Question:
How long would you be able to keep up with your core financial commitments if you lost your income?

Do I need it?
 

Your Key Policy Options

1. Scope of Cover
You will need to decide if you would like to be covered for all three risks together or just accident and sickness on its own or alternatively just redundancy.

2. Choose your deferred period
This is the length of time you would need to be off work before the policy starts paying out. The shortest deferred period is 7 days and the longest is 12 months.

3. Choose your payout length
Most plans can payout for either 12 or 24 months, if you are looking to protect your earnings for longer you are best considering traditional income protection.

What are my options?
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Sam was knowledgeable and attentive and spent a long time explaining and working out what Income Protection insurance would be best for me.

Elizabeth Owen
10/10/2017

Do I need payment protection insurance?

Modern family lifestyles typically depend upon our ability to meet our monthly financial commitments from our income.

For example, major items such as homes and cars might only be affordable by the majority of families in situations where a loan has been used to purchase them initially.

There is nothing wrong with making major purchases in this fashion – providing that you have sufficient regular income and a balanced budget to enable you to meet the scheduled repayments of the sum borrowed.

Some of your major assets might be repossessed in circumstances where you are unable to maintain the on-going loan repayments associated with them, even if the reasons for that were entirely beyond your control. That might even include your home.

How does it work?

A payment protection policy can cover you against a range of specified risks, these might all be related to the prospect of you suffering a loss of income due to situations including:

  • Accidents that prevent you from working in your normal occupation;
  • Sickness that had a similar consequence;
  • Compulsory redundancy.

A classic policy is designed to provide you with a specified level of monthly income under the qualifying circumstances.

You are free to do whatever you chose with that income, including meeting some of your regular commitments.

This is an advantage over a classic PPI policy where the payments are typically aligned with a specified monthly bill or bills and the sums paid directly to the lenders concerned – for example, mortgage payment protection insurance or loan payment protection insurance.

Long term versus short term protection

It is possible to take out an income protection policy that would continue to pay an income right up to your normal retirement date or until such time as you found alternative employment (or were fit enough to return to your old job). In most cases, long term policies (called income protection insurance – or IP) will only cover accident and sickness and, rarely, forced redundancy.

Payment protection cover offers a typically more cost-attractive version of such protection, where payments would continue for a specified period of time of perhaps 12 or 24 months.

You may also be able to select a variable deferred start of benefit date. That means you might be able to defer the commencement of income payments until a period of time after your claim was accepted – e.g. while you searched for alternative employment. That might allow you to reduce the price of the policy still further.

It’s worth noting that a fundamental principle of this type of cover is that the circumstances leading to a claim must be ones that you have had no material influence over.

So, occurrences such as pregnancy, voluntary redundancy, career breaks, sabbaticals, imprisonment and some forms of dismissal might all be examples of conditions that typically won’t be covered.

Check the occupation definition

Note that some PPI policies typically apply what is called the ‘Suited Occupation’ rule in the event of a claim. In other words, the policy may not always accept claims in situations where the provider considers you are fit enough to take alternative employment.

By contrast, IP policies typically adopt what’s called Own Occupation definitions. In other words, they will accept claims where you are unable to continue earning income from your normal occupation.

This is an important distinction. Click here to see a further summary of the differences between PPI and IP cover.

Key considerations

If you are considering PPI cover, you might want to think about:

  • How long would you need to be protected for?
    In the case of severe illness, the maximum cover periods associated with this short-term cover might prove to be insufficient for your peace of mind and if so, you might wish to consider longer term IP cover.
  • The level of cover you require
    The level of cover you need to maintain the core components of your lifestyle, loan or loans you wish to cover. Of course, the higher the total cover you require, the higher your premium will typically be. Note that typically, policies will cover up to 65% of your gross monthly amount.
  • What conditions you wish to cover?
    Some policies might be available to cover only sickness and accidents. Compulsory redundancy cover may be something that can be added though that might not be the case for some categories of self-employment. Once again, adding compulsory redundancy cover will typically increase your premium.

Need further information

To get a payment protection insurance quote from our panel of leading UK insurers then please complete the quote box. If you’d prefer to talk to us about your income protection needs, we would welcome the chance to discuss these and related issues with you and to make available to you the advice of our independent advisers.

  • We are not tied to any one provider, allowing us to search for the most suitable cover.
  • Your business is very important to us, so you’ll speak to a named consultant with a direct phone line.

Please do not hesitate to give us a call on 0208 432 7333.

 

Actual Income Protection Claims

 

The table below details real life stories of how an income protection policy has saved someone financially following an illness which left them unable to work.

The information is from Liverpool Victoria's 2011 claims, it demonstrates how anyone can lose their income, regardless of age, gender or occupation, LV's youngest claimant in 2011 was just 22 years old.

Age at Claim
Gender
Occupation
Length of Claim
Cause of Claim
Last Monthly Benefit
Total Payout So Far
31
Male
Carpet Fitter
15 years
Brain damage from road traffic accident
£303.00
£55,449.00
43
Male
Accountant
7 years
Cyst removed from the Brain
£3,194.00
£255,520.00
46
Female
Veterinary Surgeon
12 years
Arthritis
£369.00
£51,291.00
48
Male
Estate Agent
14 years
Heart Attack
£4,883.00
£805,695.00
48
Male
Doctor
1 year
Depression
£3,357.00
£53,712.00
49
Male
Physiotherapist
3 years
Depression
£1,942.00
£73,796.00
48
Male
Quantity Surveyor
7 years
Stroke
£2,528.00
£207,296.00
51
Female
Marketing Consultant
2 years
Breast Cancer
£2,434.00
£48,680.00
59
Male
Solicitor
1 year
Parkinson's Disease
£2,156.00
£26,452.00
Source: http://www.lv.com/upload/IFA-Rebrand-2009/pdf/2012/aug/212248312PMFPPAPIPclaimsSummary.pdf
 

Occupation Definition Calculator

Make sure your Income Protection covers you in your 'Own Occupation'!

Too often individuals take out income protection without being fully aware of the incapacity definition on which their plan would pay out.

Will the plan pay out if I am unable to do my current job role? Or will it only pay out if I am unable to do any occupation?

robertharveyportraitround

If you do not already have income protection this tool should provide you with guidance as to what to look out for and to ensure you do not fall foul of a lesser occupation definition.

Robert Harvey
Independent Protection Expert at Drewberry Insurance

Your Occupation
 
Manual Work (%)
Business Mileage
  annual mileage  
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Frequently Asked Income Protection Insurance Questions

 
I’m thinking about taking out an income protection policy. I can’t seem to find any information...
 
I’m considering taking out income protection, does this work in the same way as other types of...
 
I’ve been looking at both income protection and accident, sickness and unemployment insurance,...
 
I’m looking to take out Income Protection but i don’t understand what is meant by the excess...