What is income protection insurance?

If you were unable to work due to an accident, sickness or redundancy, how long would your savings cover your living costs? Here is how income protection could support you.

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What is it?

Income protection is a type of insurance that pays you an income if you have to stop working, due to illness or injury for example. When you apply for a policy, you need to think about:

    Depending on the policy you choose, income protection could cover you against:

      Compare income protection policies here

      How does it work?

      When you apply for income protection, you can usually choose either:

        There are also two types of insurance premium you could pay, depending on the insurer

          Who can get it?

          You can apply for income protection if:

            You can still apply if you have a pre-existing medical condition, but insurers may charge you more, or exclude any claims related to your condition.

            Do you need it?

            If you can afford to replace your income if you were out of work, you may not need it, but if you cannot then you should consider getting an income protection policy.

            What cover do you need?

            To decide what cover you need, think about:

              How much cover do you need?

              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, up to 65% of your income or £40,000, whichever is higher.

              To help you decide how much income protection to choose, write a budget to work out which outgoings you need to cover.

              What term should you choose?

              There are two types of policy terms:

                Short term policies are usually cheaper than long term policies 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.

                What is a deferred period?

                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 six months full pay, for example, you could choose a 6 month deferred period.

                This would mean:

                  How much does it cost?

                  An insurer will base the cost of your monthly premiums on several factors:

                    You can compare income protection policies here

                    When does it pay out?

                    When you set up your policy you can choose to have your income paid out:

                      Most income protection policies limit how long you can get an income for, such as up to the age of 70.

                      If you only want an income paid out for a fixed period, like 12 months, you could choose a short term income protection (STIP) policy instead as a cheaper alternative.

                      Here is how to claim on an income protection policy