When taking out Income Protection one of the biggest decisions you will need to make is the length of your deferred period.
The choice you make should align with any sick pay or savings you may have to rely on. It will impact several aspects of your policy as well having a significant impact on the monthly premium.
Income Protection is designed to insure your wages if you can’t work due to illness or injury. It will pay a continuation of income for anything that medically prevents you from doing your job.
When it comes to Income Protection, a deferment period is a fixed period of time you decide on that has to pass before your insurance will kick in and cover your income.
During this period, you might rely on savings, company sick pay or any other means and so won’t need the benefit straight away.
The minimum waiting period for Income Protection is known as a back-to-day-one deferred period. With this type of policy, you would only need to be out of work for 3 days before you can begin claiming and, after those three days, your benefit would be backdated to the first day you were unable to work.
At the other end of the scale, the maximum Accident & Sickness Insurance deferred period is typically 12 months, although one UK insurer does offer a two year deferment period.
Typical deferred periods include:
Could My Deferred Period Be Extended?
If you have adverse medical history, your insurer may decide to lengthen your deferral period from the one you choose. However, not every insurer will do this and the medical conditions that this applies to will vary between providers.
The cost of your policy rises and falls depending on the probability of you making a claim. As you shorten your excess period, you become more likely to claim on it, which is why shorter deferment periods tend to be more expensive.
On the other hand, if you chose to set a longer deferred period, you could save money on your policy.
No two people are the same, so no two people would benefit from the same deferment period. The most suitable length of time for your insurance policy’s deferred period will depend on your unique circumstances.
You can adjust the length of your excess period to suit your needs. You can make it shorter, which means that you can receive your benefits sooner after you stop earning, or you can choose to increase the length of your deferment period and reduce the cost of your premiums.
For people with company sick pay, savings or other means to survive for a set period, then you can choose a longer deferred period.
The level at which you’ll start to notice a real, major difference in the cost of your Income Protection will be at 13 weeks. With a 13 week deferral period, premiums could be cut by as much as 50% compared with a policy with an excess period of four weeks.
For those with less of a cushion to fall back on – particularly the self-employed who get no sick pay – a shorter deferral period may suit.
If your employer provides you with full sick pay, then you’d typically set your deferred period at a point in the future when your sick pay runs out. This is because it is not possible for you to claim both Income Protection benefits and full sick pay benefits at the same time, as you’d effectively have two incomes while off sick in these circumstances.
If you receive partial sick pay, then your Accident & Sickness policy might pay out a lower benefit while you’re on reduced sick pay, topping what you receive from your employer to the full value of your Income Protection benefit.
If you are an NHS worker in the UK, then your sick pay policy will likely provide you with six months of full sick pay and an additional six months of half sick pay. Take a Doctor who is employed by the NHS, it is possible to begin claiming after the first six months of being out of work if you have Doctor’s Income Protection.
While you are receiving only 50% of your normal sick pay from your employer, your insurance provider will cover the other 50% of your pay.
Inadequate or a lack of sick pay is one of the main reasons why so many people take out Income Protection. If you are self-employed or do not receive any form of sick pay from your employer, then you will likely have to use your savings to cover your expenses while you can’t work.
In 2018, 16.1% of people stated that they did not receive any form of sick pay. Meanwhile, our 2017 survey found that more than 1 in 4 people had £500 or less in cash savings.
If you don’t get sick pay and only have limited savings, then setting a shorter deferral period is usually the better option so you don’t have to rely on your savings if you are unable to work.
Setting your deferment period is very simple and is done when you apply for your Income Protection. The option to choose your excess period will be available when you first get quotes and is then finalised when you complete your official application.
You can use our online Income Protection quote engine to generate quotes with various deferment periods to see how the cost of cover changes depending on how long you can wait before making a claim.
You can change your deferral period at any time during your policy, although if you shorten the excess period you will face increased premiums due to the increased risk you face.
Setting a waiting period isn’t always easy and deciding between cost and level of cover can be difficult. That’s one of the many reasons it’s usually best to speak to an expert adviser when setting up your Income Protection.
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If it is all getting a little confusing and you need some help then please don’t hesitate to get in touch.
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Very good service from Rauri – he has been very helpful and thorough.