How Does Income Protection for Pilots Work?
In addition to your personal circumstances there are a number of factors you need to think about when setting your cover. Some will have a significant impact on how much your income protection will cost.
How Much Cover Do I Need?
One of the first decisions you need to make is just how much income you need to cover.
Many individuals start with wanting to cover the maximum however it makes far more sense to consider your core outgoings and align accordingly.
Some insurers allow you to cover up to 70% of your gross earnings however the more cover you require the more expensive your premiums will be.
What Is The Deferred Period? How Long Should It Be?
The deferred period is the length of time you need to be off work before the policy starts paying out. Longer deferral periods reduce premiums notably compared with shorter ones. The longer you can survive on savings or company paid sick pay the lower your premiums will be.
Note that for pilots many Income Protection providers impose minimum deferral periods.
How Long Do I Need Cover For?
You need to decide on the length of cover which is the age your protection will end. Most people align it to the age where they anticipate retiring, which is typically 65 for commercial pilots.
However, not every insurer will offer cover right the way up until the age of 65, so it pays to know which insurer will work out best for you.
The longer you are covered for the higher the chance of incapacity and so the higher your premiums will be.
Short Or Long Benefit Period?
The benefit period is the length of time a claim will be paid for should you be unable to work.
Short-term plans pay out for a maximum of 1, 2 or 5 years per condition per claim, whereas long-term policies can continue paying out either until you are well enough to return to work or you reach your policy cease age.
Given the average length of a claim is between 6 and 7 years long if your budget suffices it is best to opt for full term cover.
Guaranteed, Age Banded or Reviewable Premiums?
There are three options to choose from when it comes to type of premiums.
- Reviewable premiums
Are ‘reviewable’ as the insurer sees fit and so can rise in a variety of circumstances, such as if if the insurer has seen an increase in claims or based on economic factors.
Reviewable premiums usually start out cheaper but are reviewed upwards and as such tend to work out more expensive across the life of the policy.
- Age-banded premiums
Also work out cheaper to begin with but then steadily rise each year. Unlike reviewable premiums, however, age-banded premiums can only rise by a preset amount laid out in your policy documents.
These increases are solely linked to your age and the increasing risk of you claiming as you get older.
- Guaranteed premiums
Work out more expensive initially, but cannot be adjusted over the life of the policy unless you yourself make any changes to the plan.
Although policies with guaranteed premiums are the best option many such providers do not offer cover to to Pilots. Those that do cover Pilots and offer cost-effective premiums tend to have age-banded pricing.
Should I Choose Indexation?
Index-linking your Income Protection is a way to ensure that a fixed benefit isn’t eroded over time by inflation.
Think of the cost of a pint of milk today compared to 10 or 20 years ago – it’s gone up considerably! Inflation acts on the cost of all goods and services over time, making them more expensive and therefore harder to afford if your Income Protection benefit remains static.
Indexing your benefit means that it will move in lockstep with inflation to ensure that it will never be eroded in real terms.
Your Definition of Incapacity
Getting the right definition of incapacity is important because it’s how the insurer will determine if you’re fit for work and therefore able to make a claim.
There are three main definitions of incapacity to consider with Income Protection:
- Own Occupation Cover means that you will be entitled to your benefits as long as your injury or illness prevents you from working in your specific job role as a pilot.
- Suited Occupation 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.
This could mean a pilot who is deemed unfit to work as a pilot may not be able to claim because they would be suited to doing another occupation, such as teaching in a flight simulator for example.
- Any Occupation / Work Tasks is a definition of incapacity that 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.
It’s the most difficult to claim on and in general we’d recommend it’s best avoided.