A Complete Guide to Income Protection Insurance

If you want peace of mind knowing you can still get a salary if life takes an unexpected turn, income protection insurance could be the solution. Here, we cover all you need to know about income protection, including how it works, some of the best UK insurance providers, and how to get accurate quotes for cover.

What is income protection insurance?

It’s an insurance policy designed to pay a regular income, like a replacement wage, if you’re unable to work due to illness or injury. Instead of a lump sum payout, it provides ongoing payments to support your household finances until you’re well enough to return to work, retire or the policy expires.

How does it work?

When you take out an income protection insurance policy, you’ll pay a monthly premium (the cost to maintain the cover). If you couldn’t work due to an event covered in the policy terms, you’d get paid a replacement wage.

Depending on the level of cover, it will be a percentage of your gross salary, usually up to 70%, paid out in regular instalments. Most policies have a predetermined deferred period (time you must wait before payments kick in).

Types of policies available

Here are some examples of the main types of income protection policies you’ll come across, each can have different uses and benefits:

• Individual income protection: This is a personal policy tailored to your needs and income. Various benefits and levels of cover could be included.

• Group income protection: Often provided by employers as a workplace benefit, group protection offers a safety net for employees if they can’t work due to health issues. Cover can vary and may have limitations as it needs to suit a group. The tax implications may also differ.

• Short-term income protection: This version of income protection covers you for a fixed period (for a limited time), typically up to 1, 2, or 5 years.

• Long-term income protection: It’s usually more expensive, but can provide payouts until retirement if necessary, offering more comprehensive protection.

What does it cover?

The exact cover will depend on your policy, but income protection insurance can cover you if:

• An illness is preventing you from working and carrying out your regular duties.

• You get injured and it incapacitates you or stops you from being able to work.

• Some policies cover mental health conditions like depression or stress.

• You can usually make multiple claims while the policy is valid.

• An ‘own occupation’ policy pays if you can’t do your current job.

• A ‘suited occupation’ policy pays if you can’t do a similar job for your qualifications and experience.

• An ‘any occupation’ policy pays out if you can’t do any form of work.

It’s always important to check what’s covered under an income protection policy because it varies between insurers and across the different levels of cover provided.

Does income protection cover redundancy?

In most cases, income protection policies do not cover redundancy. This insurance is only designed to protect you if you’re unable to work due to illness or injury. However, some insurers offer various forms of unemployment protection or redundancy insurance as a separate add-on benefit or product.

How your application gets assessed

Here are some of the key areas insurers will look at when determining your eligibility and the cost of income protection insurance premiums:

• Your occupation: Whether insurers will provide protection can depend on your job. For example, if you work in a potentially higher risk sector like the police or certain types of construction where there may be possible job-related risks, getting cover can be more complex or more expensive.

• Level of cover: Choosing how much of your salary to replace will impact your premiums. For example, a policy paying out 50% of your salary will likely be cheaper than one that covers 70% of your salary.

• Type of cover: Opting for income protection that only covers you for a shorter time frame (12 or 24 months, for example) is cheaper than a policy that could cover you indefinitely until you return to work or retire.

• Deferred period: Most policies have a waiting (deferred) period before they start paying out. Delaying payments and lengthening the deferred period can reduce your premiums, but you’ll have to wait longer to start getting benefits.

• Premium structure: With some insurers, you can choose between guaranteed premiums (where the amount you pay stays the same) or adjustable premiums that fluctuate over time based on the level of cover and benefits provided.

• Occupation cover: Choosing an ‘own occupation’ policy carries a greater likelihood of a successful claim but the premiums are usually more than ‘suited occupation’ or ‘any occupation’, which can be cheaper but have a higher possibility of not paying out.

Age, health and lifestyle: Aside from income protection specifics, general factors play a significant role in your ability to get cover and at what price. Insurers will want to know your age, current health, medical history, and lifestyle habits, such as whether you exercise and if you’re a smoker.

Get an online income protection insurance quote

If you’re looking to compare income protection insurance quotes online, you might find it complex and confusing. There are many variations of income protection, and the right policy will depend on your circumstances and needs.

An insurance advisor can quickly provide accurate quotes, often faster than online platforms. This is because an advisor can quickly determine the correct type of cover for your situation. A brief conversation lets them understand your position and then match you with the best insurer.

Ready for a free, no-obligation chat with an advisor specialising in income protection insurance? You can get started here:

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Is income protection insurance worth it?

Whether income protection insurance is worth it depends on your current finances and if you have any dependants. Having adequate cover in place is crucial to maintain your standard of living if something unexpected happens.

Here’s how income protection insurance compares to some other types of important cover:

Income protection vs critical illness cover

Income protection pays you a regular income if you can no longer work due to illness or injury. In contrast, critical illness cover pays a lump sum if you get diagnosed with a serious illness.

What is and isn’t covered by each type of insurance depends on the exact policy and the provider.

Read more about how income protection compares to CiC in our dedicated guide

Income protection vs life insurance

The key difference between these policies is that income protection supports you financially with regular payments if you can’t work. Whereas life insurance typically pays a lump sum to your family (beneficiaries) if you die.

Read more about how income protection compares to life insurance in our dedicated guide

Income protection vs personal accident cover

There are similarities, but where income protection pays a regular monthly payment, personal accident cover is usually a one-off lump sum payment - and is just for physical injuries rather than illness.

Some insurers offer standalone policies or add-ons for accident cover, ensuring you can get a payout for an unexpected, but specific injury (like breaking a bone or losing a limb), even if it’s outside of work.

However, if you regularly participate in extreme hobbies like rock climbing, scuba diving, or other potentially dangerous activities, you should check first that policies will still cover you for physical accidents.

Do you need income protection?

Here are some important questions worth asking yourself if you’re wondering whether you need income protection insurance:

• Could you keep up with household expenses for long periods if you couldn’t work?

• Is there someone else in the household that can work to replace your lost income?

• Can you meet all your outgoings with benefits and government support like Statutory Sick Pay?

• Can you take early retirement?

• Does your employer offer comprehensive coverage or group protection?

• Would a partner or family member indefinitely support and look after you financially?

How much does income protection cost?

The cost of an income protection policy can vary significantly based on your personal circumstances and the insurer you use.

To give you an idea about costs, here are some rough examples based on someone in a low-risk occupation who’s a non-smoker, paying out 60% of a £40,000 annual salary for 24 months with various deferred periods:

The table below shows example quotes with a 60-day deferred period.

The above quotes are purely for example purposes and may be different to the premiums you qualify for based on your personal circumstances.

Best insurance providers in the UK

The best provider to use for income protection insurance will depend on your situation and the level of cover you need, but here are some examples of popular providers:

• Aviva: You can get limited cover with Aviva’s ‘Living Costs Protection’, which pays between £500 and £1,500 per month for up to 12 months. Although you can make multiple claims, you must return to work at least 16 hours a week for at least six consecutive months before making another claim.

• Vitality: With Vitality, you can get up to a 20% boost on payouts for 6 months if you take steps to stay healthy. The policies are relatively flexible so you can adjust your level of cover, waiting periods, and payment periods.

• LV=: Offering comprehensive income protection policies with flexible features, Liverpool Victoria allows you to customise deferred periods and benefits. They also provide additional services like rehabilitation programs to help you return to work. If you verify your pay, you can get cover for up to £8,000 per month.

• Legal & General: You can get guaranteed premiums with Legal & General and they also offer a rehabilitation service. The policies can pay up to 60% of your gross income up to a maximum salary of £60,000 (and then up to 50% over that).

Keep in mind, income protection policies can vary in terms of the costs and benefits. The best way to see all your realistic options is to get a specialist advisor to show you what’s available.

Why choose Teito for your income protection insurance?

Finding the best income protection policy isn’t always straightforward. Your individual circumstances and lifestyle will be unique, but expert support ensures you get cover that works for you, at a reasonable cost.

Our experienced advisors can find the most suitable and affordable income protection policy for your needs. They can do this because they have extensive knowledge of insurers who can offer the best income protection options for any type of applicant.

Here are some more of the reasons people choose us to find them income protection insurance:

• We can get tailored quotes for income protection

• Our advisors have 5-star ratings on leading review sites

• Your first chat is free, with no obligation to proceed

• Access to specialist insurers with exclusive deals

Ready to take advantage of a free, no-obligation chat with an advisor specialising in income protection insurance? Get started here.