HOW TO GET CHEAPER INCOME PROTECTION INSURANCE

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.