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

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Top Questions Clients Ask About Income Protection

To help you get to grips with the basics, we’ve put together a list of the top 15 questions Income Protection Insurance we’re most commonly asked by our clients.

We try to cover all bases, from the simple, such as “What is Income Protection?“, to discussing the benefits of Accident and Sickness Cover when compared to other personal insurance products.

This guide offers an explanation of this type of insurance, including how Income Protection is taxed and whether it’s worth getting cover to protect against illness and injury.

So for the answers to these frequently asked Income Protection questions, just click the links below.

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What is Income Protection?

Income Protection provides wage insurance against the risk of sickness or injury by paying a proportion of your earnings every month if you need to take time off work for health reasons, perhaps after an illness or injury.

Long-term Income Protection will pay out for as long as you need it if you can’t work on medical grounds, usually up until your pre-determined retirement age. You set this at the outset of the policy and this is typically referred to as the policy cease age.

What is Income Protection?

Short-term Income Protection (see below), on the other hand, only provides cover for a maximum period of 12 or 24 months per claim and per condition. These short-term policies can also include unemployment insurance, providing cover for forced redundancy.

The extent of your coverage can vary depending on your individual circumstances and your insurer, which is why we’re here to help you find the best Income Protection for your circumstances.

 

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Is Accident and Sickness Cover the Same as Income Protection?

‘Accident and Sickness Cover‘ is often used interchangeably with Income Protection, but they’re not necessarily the same. Accident and Sickness Insurance usually refers to shorter-term Income Protection, although there are exceptions.

Sam Carr
Independent Protection Expert

There are many different terms that we hear being used to refer to Income Protection. However, not all of them mean the same thing and not all of them offer the same amount of protection. Commonly-used phrases include:

  • Accident & Sickness Cover
    Accident and Sickness Insurance generally – although not always – offers short-term insurance for your wages should you need to take time off of work due to illness or injury. This type of cover will typically pay out for a maximum of 12 consecutive months, although some providers may have a maximum of up to 24 months.
  • Sick Pay Insurance
    Sick Pay Insurance is another term often used to describe Income Protection. Essentially, they are the same thing. With Sick Pay Insurance, you will receive monthly payments to cover your lost earnings while you are unable to work due to illness or injury.
    There are many different terms people use to describe Income Protection Insurance, but not all of them mean the same thing.
  • Critical Illness Cover
    Critical Illness Cover is a type of insurance that purely covers a set selection of insurer-defined critical illnesses. It doesn’t provide you with an income but pays a lump sum instead. If you want to know more about how Critical Illness Cover is different from Income Protection, see below for our answer.
  • Sickness Insurance
    Sickness insurance is a general term used to describe protection policies that cover illnesses. It’s often used to describe Accident & Sickness Insurance but is not an actual insurance product.
  • Accident, Sickness & Unemployment (ASU) Insurance
    Like Accident and Sickness cover, ASU Insurance will pay you a monthly sum if you need to take time off work to recover from an injury or illness. However, this type of insurance offers additional cover if you are made redundant. Accident, Sickness and Unemployment insurance provides short term cover, so typically you will be able to claim for a maximum of two years and adding unemployment cover to Income Protection may not necessarily be suited to you.
 

Beware Personal Accident Insurance!

Although this sounds similar to Income Protection, it’s actually very different. Firstly, you don’t get an income from this type of policy, only a lump sum.

Personal accident insurance is not the same as income protection

Secondly, Personal Accident Insurance policies have much looser rules surrounding their underwriting which allows providers to change the terms and conditions you signed up under, or cancel the policy entirely, with relative ease.

Personal Accident policies also tend to have an inferior definition on incapacity, such as suited occupation. This means that although you may be unable to do your job after an accident, the insurer has every right to ask you to do one that’s suited to your skillset – even if it pays less. That’s why Drewberry only recommends the own occupation definition of incapacity.

 

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What Does Income Protection Cover?

Income Protection is designed to protect a proportion of your monthly income so you have money available to pay all of your essential bills if you are unable to work due to medical reasons.

When you apply for Income Protection Insurance, you are given the option for your plan to pay out for a maximum period of 1, 2 or 5 years, or right up until retirement age (which is sometimes recommended to sufficiently cover all potential illnesses during employment).

When the Own Occupation definition of incapacity is used – which we strongly recommend – your plan would pay out for any medical condition that stops you from doing your own specific job. This could be anything from a bad back to cancer as long as it renders you medically unable to work.

 

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What is the Difference Between Income Protection and Payment Protection (PPI)?

There are a number of major differences between Income Protection and Payment Protection Insurance. Traditional Income Protection is medically underwritten at application and can offer a far more robust occupation definition when it comes to making a claim.

Sam Barr-Worsfold
Independent Protection Expert

The first difference is that Payment Protection Insurance tends to only be short-term, providing you with cover for just a set period (generally a maximum of two years). If you have PPI and you’re off work for more than two years with a medical condition – perfectly possible if it’s something serious – then the policy will stop paying out and you’ll be left without cover.

Income Protection provides the option for own occupation cover, which means the plan will pay out if you cannot undertake your specific job. Most Payment Protection policies, on the other hand, use an inferior definition, such as suited occupation or even activities of daily living.

Lastly, PPI insurers do not usually publish their payout rate (Income Protection insurers do), which makes it difficult to compare insurers or find out how good they are at honouring claims.

 

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How Much Does Income Protection Cost?

Income Protection Insurance cost will vary depending on a number of factors. Some of these you can change, such as the level of coverage you want, while others depend on your individual circumstances.

The biggest factor is how much you insure yourself for. Rather than looking for a policy that matches your income exactly, it may be better to think of your cover in terms of your outgoings if you want to cut down the cost of your premiums.

You can easily adjust the cost of your Income Protection Insurance premiums by choosing the right policy.

You can adjust the cost of your insurance premiums by negotiating your deferred period (how long you have to be incapacitated before you can make a claim), and your premium type. For instance, age-banded premiums tend to work out cheaper at the start, but they go up each year in line with your age.

You can also adjust the policy cease age with long-term Income Protection – bringing it down from what is often insurers’ default of 65 to 60 can make a massive difference towards lowering premiums, as the chance of you claiming in those last five years of the policy are much higher.

It’s important that you compare the premiums and policies of all of the the leading insurers so you know that you are getting the best deal, or speak to one of our advisers on 01273646484.

 

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Do I Pay Tax on Income Protection Payments?

Generally there’s no tax on Income Protection benefits because as an individual you’ll have paid for it from post-tax income, so you’ll have already paid tax on the premiums.

The exception is if you’re self-employed and have a self-employed Income Protection policy or Executive Income Protection plan. In this instance you may be able to use your business to pay your premiums, generally out of pre-tax income as an allowable expense against corporation tax.

This is a complicated area and it’s best to speak to an adviser about the tax position of Income Protection paid for by your own limited company – pop us a call on 01273646484.

 

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Income Protection Insurance vs Critical Illness Insurance: Which is Better?

When looking to cover your monthly outgoing Income Protection Insurance is considered more comprehensive than Critical Illness Insurance. Most Critical Illness Insurance usually covers between 40 and 50 medical conditions, while Income Protection covers any medical condition provided it keeps you from working.

Robert Harvey
Independent Protection Expert

In general, the better option depends on your circumstances, but we normally recommend Accident and Sickness cover over Critical Illness Insurance.

Income Protection Insurance is a more comprehensive option than Critical Illness Insurance if you fall ill.

Accident and Sickness Insurance pays you a monthly income if you can’t work, whereas Critical Illness Insurance pays out a lump sum just once. If you can’t work again, this may not be sufficient to last until retirement.

In some instances, we might recommend that you get coverage from both types of insurance. That way, your monthly expenditure will be covered and in the event that you develop a critical health condition you’ll also receive a one-off lump-sum payment, which could be used to make home modifications following a disability.

Feel free to read our guide to find out more about the difference between Income Protection and Critical Illness Insurance.

 

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How Good Are Income Protection Providers at Paying Claims?

UK insurers typically have great payout rates on IP policies, 97.2% of all protection claims in 2015 were successful.

Income Protection Insurance providers generally have a great record when it comes to paying out claims.

Accident and Sickness Insurance policies have been around for over 100 years and have an excellent record for paying claims.

Check the successful claims rate over the past three years for the major players in the Income Protection market here.

In total, almost £500 million was paid out in claims last year and LV=, the UK’s largest friendly society, paid out close to £77 million in new claims in 2016. One insurer, Holloway Friendly, paid 98% of all valid claims it received last year.

To find out the claims payout rates for specific insurers or products, feel free to check out our page of insurer claims statistics or use our handy tool below to find out the payout rate for different insurers and products.

 

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Insurer Claims Statistics

 

When choosing our personal protection we want to know it is going to pay out when we need it to.

By choosing a product or specific insurer from the menu below you will be able to view the claims payout rates for all of the main UK insurers for income protection, life insurance and critical illness insurance.

Insurer
2014
Percentage of Successful Claims
2015
Percentage of Successful Claims
2016
Percentage of Successful Claims
Critical Illness Insurance
Aviva
93.2%
92.5%
92.3%
Legal & General
92.2%
91.5%
92.6%
Liverpool Victoria
88%
91%
90%
Zurich
91%
92%
90%
Friends Life
94%
93%
-
Scottish Provident
94%
-
-
Aegon
93%
97%
95%
Bright Grey
94%
-
-
Royal London
94%
93%
92.2%
AIG
-
91.4%
92.3%
Income Protection
British Friendly
96.7%
97.8%
97%
Exeter
94%
94%
94%
Cirencester Friendly
94%
94%
94%
Aviva
93.2%
92.4%
92.6%
Legal & General
93.9%
95%
94.4%
Liverpool Victoria
85%
92%
90%
Zurich
93%
87%
85%
Friends Life
86%
84%
-
Aegon
92%
85%
85%
Vitality Life
-
-
94%
Royal London
90%
94%
95.6%
Holloway Friendly
96%
96.9%
98%
Shepherds Friendly
96.7%
97.6%
97%
Life Insurance
Aviva
99%
98.9%
98.9%
Legal & General
98.30%
97.9%
98.6%
Liverpool Victoria
98%
97%
98%
Zurich
99.8%
98.5%
98%
Friends Life
99%
99%
-
Aegon
98%
98%
98%
Scottish Widows
99%
98.9%
99.4%
Vitality Life
-
99%
99%
Royal London
98%
98%
96.8%
AIG
-
92.2%
95%
 

Do I Need Income Protection if I Get Sick Pay?

Statutory Sick Pay (SSP) can keep you covered for a short time if you need to take a break from work, but severe illnesses and injuries could take months or years to recover from.

If you need to take time off work to recover, your employer is legally required as of 2017 to pay SSP of £89.35 per week for up to 28 weeks. If you still aren’t ready to return to work after this period, you would have to move to ESA (see below).

Income Protection Insurance can keep you afloat when your sick pay runs out.

Our 2015 Health & Protection Survey found that 58% of workers would receive no more than 3 months of employer sick pay. Worst of all, 24% of workers reported that they did not receive any sick pay from their employers at all.

Most Income Protection claims last a lot longer than the 28 weeks of SSP. LV=, for instance, showed in their 2016 Claim Statistics that their average claim lasted seven years, seven months.

This shows how drastic the difference is between the amount of cover you get from SSP and the cover you get from Illness & Injury Insurance.

 

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Do I Need Income Protection if I Receive Benefits from the State?

The state does provide Employment and Support Allowance (ESA), but the amount paid can vary quite drastically depending on your age and the severity of your incapacity. Income Protection is more reliable and can cover more of your pre-disability income.

Kay Mechial
Independent Protection Expert

In 2017, the average amount paid out from ESA ranges roughly between £57.90 and £114.85. For people earning £30,000 this could mean loosing as much as 80% of their post-tax income. As a result, they would need to drastically change their lifestyle to stay within their new budget and may fall into significant financial hardship.

In any case, ESA is fairly difficult to obtain due to work capability assessments and clampdowns on benefits claimants, so in most cases Income Protection would be a more reliable solution.

 

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Can Income Protection Help Me if I’m Unemployed/Made Redundant?

You can sometimes include unemployment cover within traditional Income Protection Insurance plans, but this will depend on your circumstances. Many plans cover accidents and sickness only, so be sure you understand the type of Income Protection you’re buying.

Accident, Sickness & Unemployment cover, or ASU Insurance, is a form of Payment Protection. That will cover you for unemployment, but there’ll be strict conditions and the cover will only be short-term, as it’s unlikely that even if you claim for forced redundancy you’ll never be able to find work again.

Alternatively, you can ‘bolt on’ Unemployment Cover to Income Protection – but you need to check with your adviser about the ins and outs of this and whether it’s suitable for you. There are very few, if any, circumstances in which it would be suitable to buy Unemployment Insurance for the self-employed, for instance.

 

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Can I Get Income Protection if I’m Self-Employed?

Yes! There are no issues whatsoever with gaining Income Protection if you’re self-employed. Sole traders can cover a portion of their profits before tax and company directors can cover a portion of their salary and dividends combined.

Josh Martin
Independent Protection Expert

One thing to note, however, before you think that your policy will be the same as any other is that because you are self employed, you won’t be eligible to claim under an unemployment plan.

While you can have Income Protection if you're self employed, you cannot claim for unemployment.

If you are a sole trader, your policy can cover between 50% to 70% of your profit before tax (i.e. your revenue minus your costs but before tax). Sole traders would typically take out Self-Employed Protection, which has only slight differences compared to a typical policy.

If you’re a company director, Executive Protection might be the better option for you as this policy can be owned and paid for by your business.

 

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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
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What is Short-Term Income Protection?

Short-Term Income Protection covers illnesses and injuries that may keep you from work on a short-term basis. You receive monthly payouts from your policy to cover your necessities for a maximum of 12 to 24 months.

Short-term plans are a valid option, but we normally recommend Long-Term Protection to our clients. This is because you can never really be certain what’s around the corner and an illness that you thought might last only a few months might keep you out of work for several years.

While Income Protection Insurance cannot protect against unemployment, paired with Unemployment Insurance it gives you the best possible coverage.

The insurer LV= last year had claims averaging at a length of 7 years, which goes to show that serious medical conditions can keep people off work for a very long time. With only short-term coverage, you may find yourself facing financial difficulty should your health take a downward turn.

Naturally, whether you’re able to have long-term cover may come down to your budget/affordability. If this is the case, there are some ways to reduce the premium cost.

 

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Are the Premiums Cheaper Going Directly to an Insurer?

No, it is the same price if you come through us or go directly to an insurer. As the premium is the same, you can essentially use the expertise of our independent advisers for free, making sure you get the right policy from a reputable insurer.

Victoria Slade
Independent Protection Expert

Furthermore, we can complete the application for you over the telephone, taking away the hassle of filling out forms, and we’re always here to help if you need to make a claim.

We’re also able to help with other policies you may need, such as Life Insurance or Private Health Insurance. Essentially, we work for you and not the insurers.

 

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Where Can I Compare Income Protection Insurance Providers?

We offer all of the information you need to make sure that you find the right insurance plan for you. You can get a quote comparing the best 10 UK Income Protection Insurers right here, simply pop in your details and you will be presented with the most competitive premiums for your personal circumstances.

If you’re not sure whether Illness and Injury cover is right for you, you can also use our Income Riskometer which will assess how at risk your income might be.

 

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Was your question answered?

Tom Conner, Director at Drewberry Insurance, can put you in touch with Income Protection expert today.

If your question wasn’t answered here please feel free to pop us a call on 01273646484 or see the FAQ section of our website.

We exist to ensure you have the information and the support you need when considering your financial protection.

We’re here to make sure you get it right so please do not hesitate to get in touch if you need further help.

Tom Conner
Director at Drewberry Insurance

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Frequently Asked Income Protection Insurance Questions

 
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