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What you need to know about income protection insurance

Worried about what might happen if you become ill or lose your job? Income protection insurance could offer you and your family security. This is our guide on what you need to know.

Frequently asked questions

Why should I think about income protection?

Ever wonder how you’d pay the bills if sickness, injury or redundancy meant that you or your partner were unable to work? It’s not a nice thing to think about, but it’s important – especially if you have children, or financial commitments like a mortgage or rent.  

Any savings you might have would quickly disappear if they had to start covering your monthly outgoings, food shopping and travel costs. 

What types of income protection are there?

There are two main types of income protection policy. The first is called permanent health insurance (PHI) – not to be confused with private health insurance that covers medical costs. PHI means you can protect a portion of your income – often 50% of your gross salary – in the event of illness or an accident. It can pay out until you reach retirement age.  

The second type is called accident, sickness and unemployment (ASU) cover. In the event of illness, an accident or job loss, this allows you to protect the payments on your mortgage or rent, plus any other debts. You can also access some extra income.

What’s the difference between permanent health insurance (PHI) and accident sickness and unemployment cover (ASU)?

There are a few differences: 

PHI:

  • will cover you until retirement age
  • can be arranged to start when your employee sick pay stops.
  • only covers you for accident or illness
  • may require a medical – depending on your health history

ASU:

  • covers you for a maximum or 12 or 24 monthly payments
  • usually has a 30-day deferment period (the length of time you have to wait before payouts begin)
  • can include redundancy cover in addition to accident or illness. Though you often wait 90 days before you start receiving money
  • involves fewer health and lifestyle questions

Can I have more than one income protection policy?

You can, but it probably won’t be the most cost-effective way of getting protection. It’s also important to remember the maximum limits, which may be 50% of your monthly salary, no matter how many policies you have. 

One way to get full protection is to have both an ASU and a PHI policy. The first covers you after 30 days in the event of illness or an accident, and then (after 90 days) for redundancy for the first 12 months. After that PHI will replace your income for as long as necessary until you retire.

Having ASU cover in place for the first 12 months means you can have a 12-month deferred period on your PHI. This will make your premium cheaper.

Will having income protection insurance affect my sick pay?

Not at all. The idea is that the insurance takes over when your sick pay ends. If you fall ill, some employers will still pay your salary for a set period – sometimes for up to 12 months. Check how much your employer will give you and for how long. 

The longer you receive a salary, the longer you can make your deferment period. Many policies won’t pay out if you’re still receiving a salary. If you’re self-employed, you won’t have employee benefits, so income protection is something you should consider.  Not at all. The idea is that the insurance takes over when your sick pay ends. If you fall ill, some employers will still pay your salary for a set period – sometimes for up to 12 months. Check how much your employer will give you and for how long.  

The longer you receive a salary, the longer you can make your deferment period. Many policies won’t pay out if you’re still receiving a salary. If you’re self-employed, you won’t have employee benefits, so income protection is something you should consider.

How can I compare income protection policies?

It’s easy to compare prices and the different levels of cover with Compare the Market. Just use our income protection comparison service and fill in your details and what cover you’re interested in. It only takes a few minutes to see what quotes are available to you.   

Make sure you check the details of the policy, not just the price, as they will all offer slightly different cover.