Income Protection

What is Income Protection?

Income Protection provides insurance against your wage or salary. It’s 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.

If you can’t work on medical grounds, long-term Income Protection will pay out for as long as you need it if you can’t work, usually up until your pre-determined retirement age. When you start the policy, you will set your retirement age, or it may be referred to as the policy cease age.

Short-term Income Protection only provides cover for a maximum period of 1 to 2 years per claim and per condition. These short-term policies can also include unemployment insurance, providing cover for forced redundancy.

We’re here to help find the best Income Protection for your circumstances. The extent of your coverage can vary depending on your individual circumstances and the insurer you choose to go with, so we can offer the Whole of Market to make sure we find the best income protection policy for you.

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Is Accident and Sickness Cover the Same as Income Protection?

Accident and Sickness Cover is often used alternatively with Income Protection. They are similar but not the same. Accident and Sickness Insurance is normally a shorter-term Income Protection but can be made longer.

Some of the terms used for these policies are; Sick Pay Insurance, Critical Illness Cover, Sickness Insurance, Accident, Sickness & Unemployment (ASU) Insurance, Personal Protection Insurance etc.  Not all of these mean the same thing and vary a lot in the amount of protection they provide. See below for a breakdown.

 

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.

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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.

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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.

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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.

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Personal Accident Insurance

Be aware! Personal Accident Insurance is very different to Income Protection. Firstly, you don’t get an income from this type of policy, only a lump sum.

Secondly, these policies have far more relaxed rules about their underwriting, which allows providers to easily change the terms and conditions you signed up under, or cancel the policy entirely.

Personal Accident policies also have poor clarity regarding incapacity, especially when it comes to your occupation. Sometimes the insurer may ask you to do an alternative job after an accident, even if it’s not paid as well or isn’t as suitable to you. Cover My Bubble would only recommend your ‘own occupation’ definition of incapacity.

 

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What Does Income Protection Cover?

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

When you apply for Income Protection Insurance, you are given options for when you would like your plan to pay out. We’d recommend you choose up until retirement age, as you don’t know how an illness could affect you and this duration would cover all unfortunate eventualities. 1, 2 or 5 year options are also possible.

When the ‘Own Occupation’ definition of incapacity is chosen your policy 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.

 

 

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

There are several major differences between Income Protection and Payment Protection Insurance. Income Protection normally medically underwritten at the time of application and can offer a far stronger occupation definition when it comes to making a claim.

Payment Protection Insurance (PPI) tends to only be for a short-term, only covering you for a set period (maximum two years). Therefore, if you have PPI and you are off work for more than two years with a medical condition then the policy will stop paying out and you’ll be left without cover. Also, PPI insurers do not usually publish their pay-out rates which can hinder you doing insurance comparison quotes or how good they are at honouring claims.

As mentioned, Income Protection provides the option for ‘own occupation’ cover, which means the plan will pay out if you cannot undertake your specific job role.

 

How Much Does Income Protection Cost?

Income Protection Insurance costs will vary depending on several factors. You can change the level of coverage you want to reduce the price, but some will depend on your individual circumstances.

The main cost comes from how much you wish to insure yourself for. Try not to choose a policy that matches your exact income but cover the majority of your expenses. This will 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 reduce the cost of your insurance premiums by negotiating the length of time you have to be incapacitated before you can make a claim (known as your deferred period). Also, you can choose your premium type. Age-banded premiums (one that goes up every year with your age) will probably to work out cheaper at the start but obviously increase. Or level premiums which stay the same over the period but balance out overall.

Another cost saver you could do is; adjust the policy cease age with long-term Income Protection. Maybe bring it down from an insurers’ default age (of 65 to 60). This can make a huge difference towards lowering your premium, as you’re more likely to claim in the last five years of the policy, which carry the most likelihood of a claim.

Cover My Bubble do the important comparison for you. As we have your interests at heart and have taken into consideration all your circumstances, we can use all the top insurance providers to get the best premiums and policies for you. Speak to one of our protection specialists on 01254 460880.

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Do I Pay Tax on Income Protection Payments?

You’ll have paid tax already on your post-tax income, so you’ll have already paid this in your premiums.

Only if you are self-employed and your business has paid your premiums, will you have to pay tax on the payment. This can also apply if you have a self-employed Income Protection policy or Executive Income Protection policy.

Cover My Bubble would prefer to help you with this as it can be a complicated area. It’s best to speak to our protection specialists about the tax position of Income Protection paid for by your own limited company – give us a call on 01254 460880.

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Which is Better? Income Protection Insurance or Critical Illness Insurance

If you are looking to cover your monthly outgoings, Income Protection Insurance is considered more inclusive than Critical Illness Insurance. Most Critical Illness Insurance usually covers between 40 and 50 medical conditions. If you prefer to be covered if your medical condition keeps you from working, Income Protection cover is probably better for you.

Only you really know what is best, based on your own circumstances, but we’d normally recommend Accident and Sickness cover (ASU) over Critical Illness Insurance. Income Protection Insurance is a more complete option than Critical Illness Insurance if you fall ill.

ASU 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 enough to last until your retirement.

You could consider getting 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.

 

How Good Are Income Protection Providers at Paying Claims?

UK insurers typically have great pay-out rates on Income Protection policies. Accident and Sickness Insurance policies have been around for over 100 years and have an excellent record for paying claims.

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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.

At the time of writing this, 2019, your employer is legally required to pay SSP of £94.25 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 Employment and Support Allowance (ESA). Income Protection Insurance can keep you afloat when you’re sick pay runs out.

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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. 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.

 

Can Income Protection Help Me if I’m Unemployed or 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 (ASU) 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.

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.

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?

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What is Short-Term Income Insurance?

Short-Term Income Protection covers illnesses and injuries that may keep you from work on a short-term basis. You receive monthly pay-outs 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.

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 use the expertise of our protection specialists for free, making sure you get the right policy from a reputable insurer.

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 the information you need to make sure that you find the right insurance plan for you. You can get a quote comparing the best UK Income Protection Insurers. Please give us a call on 01254 460880.

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