What is long term income protection?

Long-term income protection is like a backup plan for your paycheck. If you get really sick or hurt and can’t work for a long time, or even ever again, this insurance helps by paying you a part of your monthly income.

It keeps paying you until you can work again. But if you can’t return to your job, it will continue to pay until you reach retirement age or until the policy’s time is up.

In short, it’s there to make sure you still have some income coming in if a health problem suddenly stops you from working.

What does long term income protection cover?

Long-term income protection is specifically designed to provide financial assistance if you’re unable to work due to illness or injury. It covers the gap left when your employer’s sick pay ends or after a waiting period you agree upon when setting up the policy.

This insurance typically pays a monthly sum, tax-free, which ranges from 50% to 70% of your usual income. The coverage continues providing this support until one of the following happens: you’re able to return to work, you reach retirement age, the policy term concludes, or in the event of your death.

Moreover, many policies offer the flexibility of multiple claims. This means if you recover, go back to work, and then become unable to work again due to another illness or injury, the policy can be activated again to provide the same financial support.

What can long term income protection be used for?

The money you receive from long-term income protection is tax-free and you can use it in any way you see fit. It’s mainly intended to help you keep up with your usual expenses, including things like:

• Your mortgage or rent payments
• Household utility bills
• Credit card and loan payments
• Costs related to childcare
• Expenses for fuel and transportation

Who needs long term income protection?

Deciding whether to get long-term income protection is a personal choice, but you might want to think about it if you:

• Don’t have enough savings to support yourself if you couldn’t work
• Work for yourself
• Have a family or a partner who depend on your income
• Work 16 hours a week or more
• Don’t have income protection as part of your work benefits
• Are likely to receive little or no sick pay from your employer
• Don’t already have a similar type of coverage, like mortgage payment protection

Income protection can be an essential support for anyone who would find it hard to cover their expenses if they couldn’t work for a long time.

How long does long term income protection last?

When you arrange a long-term income protection policy, you often have the option to select the benefit term. This term defines how long your policy will last and for how long it can provide payments.

Typically, most long-term income protection policies are set to continue until you reach retirement age. However, some insurance providers might give you the flexibility to choose a specific age at which your income protection will end.

Usually, it’s logical for the coverage to conclude at your retirement, since you wouldn’t need to protect your income after you’ve stopped working.

How much of my income will it cover?

The amount of coverage you get from a long-term income protection policy often depends on a set percentage of your salary.

When you sign up for the policy, you’ll decide on this percentage. Typically, providers offer coverage ranging from 50% to 70% of your monthly income.

For instance, if your yearly salary is £50,000 and your policy covers 60%, you could receive up to £30,000 a year, tax-free, if you’re unable to work due to health reasons.

Keep in mind, some insurance providers might offer a higher percentage for a certain part of your salary, and a lower percentage for the amount above that. That’s why it’s a good idea to look around and compare different policies to find the most suitable fit for you.

What types of long term income protection can I get?

When you’re picking out a long-term income protection policy, you often get to choose from different types of incapacity coverage:

• Own Occupation: This covers you if an illness or injury stops you from doing any part of your specific job. It’s usually the most thorough type of cover, but also the most expensive.
• Suited Occupation: With this policy, you’ll get coverage only if your health stops you from doing any job that fits your education and training.
• Any Occupation: This offers the least coverage. It only pays out if your injury or illness makes it impossible for you to do any work-related tasks, like writing with a pen or using a computer.

How much does long term income protection cost?

The cost of long-term income protection varies based on the policy you choose and your own situation. Insurers consider several factors to figure out your premiums:

• Your Age: Getting coverage when you’re younger usually costs less.
• Your Job: If your job has a higher risk of injury or illness, the insurance will be pricier.
• Smoking Status: Being a smoker can increase your premiums since it’s linked to health risks.
• Hazardous Hobbies: Activities with a higher risk of injury, like skydiving, will raise the cost of your insurance.
• Medical History: If you have certain pre-existing health conditions, it may increase your premiums or make it difficult to get insured.
• Policy Length: Policies that cover you for a longer period are typically more expensive than short-term options.
• Deferred Period Length: The longer you wait for your insurance payments to start, the lower your premiums will usually be.
• Type of Incapacity Cover: More comprehensive coverage, like own occupation policies, will cost more compared to those with less coverage.

Are there any exclusions?

Income protection is a great safety net, but it doesn’t cover every scenario where you might find yourself unable to work.

It’s important to read the terms and conditions of your policy, but usually, there are some common things it won’t cover, such as:

• If you’re out of work because you’re unemployed.
• Injuries you cause to yourself on purpose.
• Not following the advice of a doctor.
• Illnesses or injuries caused by drug or alcohol misuse, pregnancy, criminal activities, or war-related events.
• Not telling your insurance provider if you switch jobs.

Can I get long term income protection if I’m self employed?

Absolutely, if you’re self-employed, you can definitely get long-term income protection. It’s even more crucial for you since you don’t have sick pay from an employer to rely on.

But to qualify for this coverage, you’ll likely need to show at least a year’s worth of audited accounts. This is to prove your average income, which the insurance will be based on.

How do I choose the right long term income protection policy for me?

Choosing the right long-term income protection policy involves considering several factors to match your needs and budget:

The Deferred Period

This is the time you have to wait before the policy starts paying out, ranging from four weeks to about a year, depending on the insurer. Consider if you’ll get sick pay, how long it might last, and when you’d need the insurance to start.

The Type of Cover

‘Own occupation’ cover is the most comprehensive, ensuring you’re not forced into a different job if you can’t do yours due to illness or injury. It’s generally more expensive but offers better claim potential.

On the other hand, ‘suited occupation’ or ‘any occupation’ cover is cheaper but offers less protection and makes it harder to claim unless you’re unable to do any work.

The Payment Period

This defines how long you’ll receive payments while out of work. Options vary from five years to up until retirement, depending on the provider. Longer payment periods usually mean higher costs. Consider factors like dependents when choosing.

The Type of Premium

The cost is a big factor, and you’ll encounter different premium types:

• Guaranteed premiums stay the same throughout the policy.
• Reviewable premiums might change after the first five years and then annually, possibly leading to higher costs over time.
• Age-banded premiums increase as you age, but at a predictable rate.
• Inflation-linked premiums adjust yearly with inflation, affecting both coverage amount and premium cost.

Retirement Age

Most policies end at retirement age, but the specific age limit can vary between insurers, from 65 to 70 years. Choose a policy that aligns with your planned retirement age.

What is income protection insurance?

Income protection insurance is a type of policy that helps you financially if you can’t work because of illness or injury.

It pays you a regular income, usually a percentage of your salary, if you’re unable to do your job for a significant period.

This insurance is designed to ease the financial burden during times when your health affects your ability to earn an income, ensuring you can still cover your essential expenses like bills, mortgage, or rent.

What are the different types of income protection plans?

There are mainly two types of income protections plans:

• Short-Term Income Protection: These plans provide coverage for a limited time, typically from a few months up to one or two years. They’re designed to offer financial support in the short term if you’re temporarily unable to work.
• Long-Term Income Protection: These policies provide coverage for a longer period, potentially until you retire or are able to return to work. Long-term plans are suitable if you’re seeking protection against prolonged inability to work due to serious health issues.

Both types are designed to replace a portion of your income if illness or injury prevents you from working, but the duration of the coverage and the nature of the benefits can vary significantly between short-term and long-term plans.

Benefits of income protection insurance

Income protection insurance offers several benefits:

• Financial Security: It provides a regular income when you can’t work due to illness or injury, helping you manage your finances and maintain your standard of living.
• Coverage for Bills and Expenses: The payments from the policy can be used to cover essential expenses like mortgage, rent, utilities, and daily living costs.
• Peace of Mind: Knowing you have a safety net in case of health problems reduces stress and allows you to focus on recovery without financial worries.
• Tailored to Your Needs: Policies can often be customised in terms of coverage amount, duration, and waiting periods, fitting different needs and budgets.
• Tax-Free Payments: The income you receive from these policies is usually tax-free, ensuring you get a significant portion of your usual income.
• Support for Recovery: With financial concerns addressed, you can take the necessary time to recover properly without rushing back to work.

These benefits make income protection insurance a valuable tool for safeguarding your financial wellbeing in challenging times.

What does income protection cover?

Income protection insurance typically covers:

• Lost Income Due to Illness or Injury: It provides a replacement income if you are unable to work because of sickness or an accident.
• A Percentage of Your Regular Salary: The policy usually pays out a portion of your usual earnings, often between 50% to 70%.
• Recurring Monthly Expenses: This can include mortgage or rent payments, bills, and other day-to-day living costs.
• Long-Term Security: Depending on the policy, it can cover you for several years or even until retirement age, in case of long-term illness or injury.

The coverage ensures that you can maintain your lifestyle and meet your financial obligations even when you’re unable to earn an income due to health reasons.

What does income protection exclude?

Income protection typically excludes:

• Pre-existing Medical Conditions: Illnesses or injuries you already had before taking out the policy are often not covered.
• Voluntary Unemployment: If you choose to leave your job or are fired for misconduct, you won’t be covered.
• Certain Illnesses or Injuries: Depending on the policy, some specific conditions or injuries might be excluded.
• Drug or Alcohol Abuse: Health issues resulting from substance abuse are usually not covered.
• Criminal Activity or War: Injuries or illnesses due to involvement in criminal acts or war are typically excluded.

Each policy has its own specific exclusions, so it’s important to read the terms carefully to understand what’s not covered.

What are income protection premiums?

Income protection premiums are the regular payments you make to keep your income protection insurance active.

These premiums are calculated based on several factors, including your age, health, occupation, and the level of coverage you choose. The amount and frequency of these payments (monthly or annually, for example) are determined when you take out the policy and can vary from one insurer to another.

Essentially, these premiums are the cost of maintaining your insurance coverage, ensuring you have financial support in case you’re unable to work due to illness or injury.

How much does income protection cost?

The cost of income protection varies widely and depends on several factors:

• Your Age: Generally, the younger you are when you take out the policy, the lower the premiums.
• Health and Lifestyle: Your current health, medical history, and habits like smoking can affect the cost. Healthier individuals usually pay lower premiums.
• Occupation: Jobs with higher risks of injury or illness often lead to higher premiums.
• Coverage Level: The percentage of your salary you want to cover and the policy’s duration influence the cost. Higher coverage levels and longer terms typically increase the price.
• Waiting Period: The length of time before the policy pays out after you stop working (deferred period) also impacts the cost. Longer waiting periods can reduce the premium.
• Type of Policy: Whether the policy is inflation-linked, guaranteed, or reviewable can affect pricing.

The specific combination of these factors means that the cost of income protection can vary significantly from person to person.

How to claim income protection benefits

Claiming income protection benefits typically involves the following steps:

• Notify Your Insurer: As soon as you realise you’re unable to work due to illness or injury, contact your insurance provider to inform them of your situation.
• Complete a Claim Form: Your insurer will provide a claim form, which you need to fill out with details about your condition and how it affects your ability to work.
• Provide Medical Evidence: You’ll need to submit medical documentation from your doctor or specialist confirming your illness or injury and its impact on your work.
• Wait for the Assessment: The insurer will review your claim, which may include assessing your medical information and possibly requesting additional details.
• Adhere to Policy Terms: Ensure you comply with the terms of your policy, such as the deferred period, which is the waiting time before your benefit payments start.
• Receive Payments: Once your claim is approved, you will start receiving regular payments, as defined in your policy, to replace a portion of your income.

It’s important to understand your policy’s specific requirements and follow them closely to ensure a smooth claim process.

How much does income protection insurance cost?

Income protection insurance is there to help you financially if you can’t work due to health issues, accidents, or sometimes even redundancy. But how much do you need to pay for this safety net?

The answer isn’t one-size-fits-all.

The cost varies based on a mix of factors: your age, your overall health, whether you smoke, and how much of your income you want to cover. Remember, insuring a smaller portion of your income usually means a lower premium.

Also, the duration of your policy plays a crucial role.

To get a clearer picture of what it might cost you, and to compare different policies, it’s wise to gather quotes for income protection insurance.

What factors affect the cost of income protection insurance?

The price you pay for income protection insurance isn’t random; it’s shaped by several critical factors.

Let’s delve into what these are:

Your Age

Age matters in insurance. Older individuals are often considered more likely to take time off work for health reasons, leading to higher premiums compared to younger folks.

Your Health

It’s simple – the healthier you are, the lower your premiums tend to be. If you’ve had health issues in the past, insurers see you as more likely to make a claim, which could mean higher costs. Specific health conditions might even be excluded from your policy. Details like your smoking status, weight, and height are also taken into account, as they all relate to your health risk profile.

Your Job

The nature of your work can impact your premiums. Jobs with higher accident risks, especially manual labour, usually come with higher insurance costs.

Policy Duration

Are you looking at short-term or long-term protection? Short-term policies, typically lasting 12 months to two years, are less expensive than long-term ones, which may offer coverage up to retirement or until you can return to work.

Deferral Period

This is the waiting time from when you stop working to when you start receiving payments. Longer deferral periods can lower your premiums, while shorter ones can increase them.

Coverage Amount

You can typically insure up to 70% of your gross salary, but opting for a lower percentage can make your premiums more affordable.

Understanding these factors can help you make informed choices about your income protection insurance.

Carefully consider premium types

The type of premium you select plays a major role in the long-term cost of your income protection policy. It’s crucial to pick a premium that you’re confident you can afford throughout the policy’s lifespan.

Let’s look at the three common types:

Renewable Premiums

These premiums are subject to change. Initially, they may remain stable for a few years, but they can vary annually afterward. The catch? You won’t know the exact total cost over the policy’s life, and the premiums could increase based on the insurer’s review. If you opt to continue paying the initial amount when the premium is raised, your coverage amount may decrease.

Guaranteed Premiums

With guaranteed premiums, the amount you pay each month stays the same for the entire policy term. The insurer commits to not altering your premium, provided there are no changes to your policy. This predictability makes it easier to budget for your insurance costs.

Age-Related Premiums

These premiums might start off as more affordable than the guaranteed or reviewable types, but they can increase significantly as you age.

There are two types here:

• Age-related guarantee premiums: These increase at a predetermined rate, giving you a clearer picture of future affordability.
• Age-related reviewable premiums: The rates for these premiums can change and are not fixed in advance, adding an element of uncertainty.

How can I get cheaper income protection insurance?

Finding affordable income protection insurance is all about being smart with your choices. Here are some tips to help you lower the cost:

Shop Around

It’s essential to research and find the right type and level of protection for your specific needs. Get quotes from multiple different providers or through CoverMe123 where our partnered advisors shop across the market to find the right option for you.

Avoid Overinsuring

Income protection policies typically cover 50-70% of your gross annual salary. Think about your monthly expenses, like mortgage and bills, against potential redundancy pay or government benefits.

Opting for a lower coverage percentage can reduce your premiums.

Choose the Right Occupation Class

When applying, insurers might ask about the class of occupation for coverage: ‘own occupation’, ‘suited occupation’, or ‘any occupation’. While ‘own occupation’ coverage is more comprehensive (and expensive), other types might cost less but offer reduced coverage.

Consider Short-Term Policies

Short-term policies, covering 12 months to two years per claim, are less expensive than long-term options that may extend until retirement or your return to work.

Opt for a Longer Deferral Period

The deferral period is the wait time before the policy pays out. Aligning this with your employer’s sick pay policy or your savings can lower premiums.

Lead a Healthier Lifestyle

Healthier individuals often enjoy lower premiums. Factors like smoking status, weight, and BMI have an effect.

Explore Switching Providers

The market constantly changes, and new or enhanced policies might be available. However, talk to a financial adviser before switching, especially if your circumstances have changed since you first took out your policy.

Regularly Review Your Policy

As your life changes, so should your policy. An annual review ensures your coverage matches your current needs, especially if your income fluctuates.

Consider Self-Insuring

Building up savings can be an alternative to insurance, though it requires a big amount to match long-term policy payouts. Think about if this approach is the right choice for you.

Can I get a joint income protection policy?

When it comes to income protection insurance, it’s important to know that these policies are strictly individual.

You cannot get a joint policy.

This individual approach is due to the unique underwriting process for each person, which factors in specific details like your job, income, age, and health.

However, if you’re looking to secure financial safety for both you and your partner, each of you can apply for separate policies. This ensures that each policy is tailored to the individual needs and circumstances of each person.

Get the right cover for your circumstances

Picking the right level of income protection insurance depends on your unique financial situation. Think about what bills and debts you have – do you pay rent or a mortgage? Are you paying off loans or credit cards?

Also, consider your savings and if you have a family depending on your income. Your specific needs might mean that a less expensive, short-term income protection policy is a better fit for you, rather than a pricier long-term option.

It’s all about finding the balance that works for your life and financial responsibilities.

Do I need unemployment cover?

Unemployment cover is designed to support you financially if you unexpectedly lose your job, such as through redundancy, but not due to your own choice or if you’re fired.

It’s important to note that this cover doesn’t apply to voluntary redundancy or if you decide to leave your job.

Typically, unemployment cover is included in broader insurance policies that also cover accidents and sickness.

When considering whether you need this cover, reflect on your personal situation, the stability of your job, and the redundancy benefits your employer offers. This will help you decide if adding unemployment cover to your insurance plan is the right move for you.

Should I choose level cover or an inflation-linked policy?

When getting income protection insurance, one key decision is choosing the type of coverage as it can have an impact on how much you pay:

Level Cover

With level cover, the amount you’re insured for stays the same throughout the policy’s life. It doesn’t adjust for inflation, meaning its real value might decrease over time.

This option might suit you if you anticipate your essential expenses decreasing in the future, like when your mortgage is paid off or your children become financially independent.

Inflation-linked Cover

In this option, your coverage amount increases each year to keep up with inflation. However, keep in mind that your premiums will rise as well.

This type of policy ensures that the value of your coverage remains consistent relative to the cost of living.

Do I need a waiver of premium?

A waiver of premium is an add-on to your insurance policy that acts like a safety net for your premiums.

It’s particularly useful if you become ill or have an accident that stops you from working and earning. If this happens, and you can’t afford to pay your insurance premiums during the policy’s deferral (or waiting) period, the waiver kicks in.

It covers the cost of your premiums during this challenging time, ensuring that your policy remains active and doesn’t lapse.

Should I take out multiple income protection policies?

Having more than one income protection policy is possible, but it’s not a strategy to cover your entire salary.

Here’s why:

When you make a claim, insurers will ask if you have other income protection or accident, sickness, and unemployment policies. If you do, they’ll limit the payout so that the combined income from all your policies doesn’t exceed a certain percentage of your gross salary.

For instance, if you have two policies, each covering 50% of your salary, and if each insurer’s maximum limit is 50%, you’ll still receive only up to 50% of your salary in total. This means the premiums paid for the second policy wouldn’t really benefit you.

Insurers set these limits to ensure that your total income from the policies doesn’t match or exceed what you would earn while working. This approach is to maintain an incentive to return to work. Therefore, paying for multiple policies might not be the most effective use of your resources.

How does income protection insurance work?

Income protection insurance helps you out with regular money if you can’t work because of sickness or an accident. Here’s how it works:

• Pays Part of Your Income: If you can’t work, this insurance gives you between 50% and 65% of the money you usually earn.
• How Long It Pays: You’ll get these payments until you can go back to work, or until other situations like retiring, the end of the insurance period, or in case you pass away.
• Covers Many Illnesses: It’s good for different kinds of sickness or injuries that stop you from working, whether it’s for a short time or longer, depending on what your policy says.
• Claim More Than Once: You can ask for money multiple times while you have this insurance.
• Waiting Period: There’s a set time you have to wait before the money starts coming, usually from 4 weeks up to a year. If you choose to wait longer, your monthly cost for the insurance can be lower.

Remember, this isn’t the same as critical illness insurance. That kind gives you a big amount of money all at once if you get really sick with certain illnesses, but income protection gives you ongoing money for a wider range of health issues that stop you from working.

When do you need income protection insurance?

Sometimes we think our job will still pay us if we get sick or have an accident and can’t work. But the truth is, many people only get basic sick pay for a short time, often just six months.

Here’s why and when income protection insurance can be a real lifesaver:

• Limited Employer Support: Most jobs won’t pay your full salary if you’re off work sick for more than a few months. Check what your job’s policy is for long-term sickness.
• Covering Your Bills: Without your usual income, it can be hard to pay important bills like your mortgage, rent, or electricity. This is especially true if you don’t have a lot of savings.
• Self-Employed Challenges: If you work for yourself, you probably don’t have any sick pay at all. This insurance is even more crucial for you.

Think about how losing your income would affect your life. If it would make things really tough, then income protection insurance is a smart choice to keep you covered.

Who doesn’t need income protection insurance?

There are certain situations where income protection insurance might not be necessary for you.

You might not need income protection insurance if:

• your job’s benefits package includes long-term sick pay (like covering your income for a year or more), you might not need extra insurance.
• government benefits are enough to handle all your expenses, then additional insurance might not be crucial.
• you’ve saved a lot of money that can last for a long time, you might be able to do without this insurance. But remember, your savings could need to stretch further than you expect.
• you’re in a position to retire early and have enough retirement funds, then income protection might not be as important.
• your partner or family can financially support you in a way that covers all your needs, this could reduce your need for such insurance.

In each case, it’s important to carefully consider how long you could manage without your income and whether these alternatives would fully cover all your expenses and financial commitments. It’s all about balancing your current safety nets against the potential risk and duration of income loss.

How much does income protection insurance cost?

The monthly cost of your income protection insurance is tailored to your unique situation and the specifics of the policy you choose. It’s crucial to look at different insurance providers to see what they offer, as coverage for illnesses, conditions, and situations can vary.

Key Factors Influencing Cost:

• Your Age: Younger individuals often pay less, as they’re generally considered lower risk.
• Your Job: The nature of your occupation can affect your premiums. Riskier jobs typically lead to higher costs.
• Smoking Status: Current smokers, or those who have smoked in the past, usually face higher premiums due to increased health risks.
• Income Coverage Level: How much of your income you want to cover influences the price. Covering a higher percentage of your income will generally increase the cost.
• Waiting Period: The length of the waiting period before the policy pays out impacts the cost. Longer waiting periods can reduce the premium.
• Coverage Scope: The range of illnesses and injuries covered can affect the price. More comprehensive coverage typically costs more.
• Health Factors: Your current health, weight, and family medical history are taken into account. Better health often leads to lower premiums.

Premium Types:

• Standard Premiums: These can be adjusted by the insurer over time. They might start lower but can increase based on various factors.
• Guaranteed Premiums: These remain the same for the duration of your policy. They might be slightly higher initially, but they offer the certainty of fixed costs in the long run.

Many people prefer guaranteed premiums for their predictability, even though they may be more expensive initially. It’s important to weigh the immediate cost against the long-term predictability when deciding which type of premium is right for you.

How do I buy income protection insurance?

The cost and criteria for income protection insurance can vary significantly between insurers, so it’s important to shop around and research thoroughly.

Consulting an independent financial adviser or a specialist broker can be extremely helpful. These professionals can guide you through the details of various policies and help you choose the one that best fits your needs.

Keep in mind that these advisors might charge a fee for their services, or they could be compensated through commissions from insurance companies.

For those who have had difficulties in securing insurance, perhaps due to a medical condition or a high-risk occupation, specialist brokers and insurers are available. They offer tailored solutions that standard policies might not cover, providing options for those with unique insurance needs.

The goal is to find a policy that offers the right balance of adequate protection and affordability, and professional advice can be key in navigating this decision.

Four important things to think about when buying income protection insurance

1. Be open and honest about your medical history
2. Choose the right level of cover for you
3. Check all the details
4. Keep your cover up-to-date

How to cancel income protection insurance

You can ask your insurer to cancel your policy whenever, but If you want to cancel your insurance, here’s what to keep in mind:

• If you get a new policy when you’re older, it could cost more.
• A new insurance might not cover health issues you already have.
• Once you cancel, you can’t restart the same policy.
• You won’t get back the money you’ve already paid, but you won’t have to pay any more either.

Just call your insurance company and tell them you want to cancel. It’s a simple process.