If you can afford to replace your income if you were out of work, you may not need an income protection policy.
But if you cannot, you should consider an income protection policy.
You can apply for income protection if:
You are in full time employment
You are in part time employment
You are self employed
You can also apply if you have a pre-existing medical condition, but insurers may charge you more, or exclude any claims related to your condition.
An insurer will base the cost of your monthly premiums on several factors:
Age: The younger you are, the cheaper your policy will be monthly. You can apply from 18 years old, with most insurers letting you apply up to the age of 60.
Health: You complete a medical questionnaire when you apply, and confirm if you smoke or have ever smoked. The healthier you are, the cheaper your premiums.
Income needed: This could either be up to a set amount or a percentage of your annual income. The higher the amount, the more expensive your premiums will be.
Length of cover: The shorter the term you choose, the cheaper it will be. This is because the insurer has a shorter window of time when they could pay out.
Deferred period: You can reduce your monthly premiums by choosing a deferred period. Most insurers let you defer your payout by 6 or 12 months.
To decide what cover you need, think about:
How long you want a policy to pay you an income for
The percentage of your income you want covered
Most insurers let you specify an amount or choose a percentage of your existing annual income, for example 65% of your yearly salary.
Most insurers have an upper limit on the amount you can cover, for example 65% of your income but capped at £40,000.
To help you decide how much income protection to choose, write a budget to work out which outgoings you need to cover.
There are two types of policy terms:
Short term: You only get an income paid to you for a set term, such as 6 or 12 months.
Long term: You get an income paid to you for as long as the policy allows, usually up to your retirement age or a set term like 40 years.
Short term policies are usually cheaper than long term cover because the insurer will only ever need to pay out an income for a limited time.
However, if you were off work for a longer period of time, a short term policy would not cover your income when you really need it.
It is the time between making a claim and when you start getting an income paid to you. You can choose to have a deferred period of 6 or 12 months, sometimes longer.
The longer the deferred period you choose, the cheaper your premiums are likely to be.
Ask your employer how long they will pay you if you could not work due to illness or injury. If you get 6 months full pay, for example, you could choose a 6 month deferred period.
This would mean:
You continue to get an income if you cannot return to work after 6 months
Your premiums are likely to be cheaper than a policy that pays out straightaway