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08081 411 332What 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.
What types of income protection are there?
There are several types of income protection policy:
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, providing you with greater financial security.
Find out more about Permanent Health Insurance.
Accident and sickness cover – if you find yourself unable to work, through sickness or injury, this cover provides an alternative income for you to pay your monthly outgoings until you can return to work.
See more information about sickness and injury cover.
Unemployment cover – should you lose your job, this provides you with a steady replacement income. After a deferred period upon leaving work (which can be adjusted in your policy), you’ll begin to receive a tax-free monthly income to replace your lost earnings.
Find further details about Unemployment Insurance.
Accident, Sickness and Unemployment (ASU) cover – a combination of the above, 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.
Get more information about ASU.
Short term or long-term income protection?
Depending on your needs, you may choose either short term or long-term income protection cover.
Short-term income protection typically covers any lost earnings through illness or injury that leave you unable to work. It can also cover unemployment, so that, in the event of redundancy for example, your earnings are replaced with an alternative income until you are back in work. This type of cover typically lasts for one or two years.
Long-term income protection is more suitable for more serious circumstances, which leave you unable to work for a much longer period, usually owing to sickness or injury. Long-term protection tends to start from five years of cover and can cover you all the way to retirement age.
Frequently asked questions
Do you need income protection insurance?
Sickness, injury and redundancy are just a few of the things that can suddenly impact your income. It’s not a nice thing to think about, but it is important, especially if you have a family or additional financial commitments.
These circumstances can quickly burn through any savings you have managed to build, with everything from your mortgage/rent, utilities, food and travel to consider.
Income protection insurance gives you the security and peace of mind, so that, should something happen, your monthly outgoings are covered.
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. 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.
What alternatives are there to income protection insurance?
The income protection cover that we offer isn’t the only option available to you. Here are a couple of alternatives for you to consider:
- Mortgage Payment Protection – if you suddenly become unemployed, or are off work through sickness or injury, mortgage payment protection covers the cost of your monthly mortgage payments.
- Redundancy Protection – similar to unemployment cover, redundancy protection is a form of insurance that helps you to cover your monthly outgoings if you’re made redundant.
