Income Protection

What Is Income Protection?

Income Protection covers a proportion of your monthly salary should you suffer an accident or illness that prevents you from working.

An Income Protection policy:

• Covers up to 70% of your gross annual salary
• Enables you to cover your core outgoings (mortgage or rent, utility bills and grocery shopping)
• Pays out after as little as 1 week of illness or injury
• Protects your income right up until your expected retirement age
• Helps to maintain your regular lifestyle while recovering.

Why Is Income Protection Insurance Important?

Income Protection is important for a variety of reasons. Many people don’t receive financial protection from their employer in the event they take sickness leave. And benefits provided by the government are likely to only make a small dent in your outgoings if you can’t work for any medical reason.

Income Protection provides a financial safety net, ensuring that you can cover your bills and expenses without having to worry. Having this peace of mind means you can focus on getting better and returning to work without any financial worries.

How Does Income Protection Work?

If you fall ill or suffer an accident that leaves you unable to work, Income Protection pays out a monthly benefit to cover part of your income. Policies cover most illnesses and injuries, including musculoskeletal issues, cancer, and mental health disorders.

When setting up your Income Protection policy, you’ll choose:

• How much cover you need
• The length of your policy (short-term or long-term options)
• A deferred period.

You will pay a premium for cover, either monthly or annually. If you need time off due to an accident or sickness, you can make a claim. This is only if your policy covers the medical issue.

In the event of a successful claim, you’ll have to wait out the deferred period. Once this has passed, your monthly benefit begins. You receive this as tax-free payments. These payments continue until one of the following occurs:

• You’re well enough to return to work
• The policy term ends
• You retire.

What Does Income Protection Cover?

Your Income Protection policy is designed to pay out if you’re unable to work because of:

• Accidents or bodily injuries
• Periods of ill health.

Income Protection has few exclusions, making it the most comprehensive incapacity insurance on the market.

When setting up a policy, make sure it covers you in your own occupation. Here, you’re eligible to make a claim as long as you’re incapable of carrying out your specific job duties.

Support Services And Additional Benefits

Income Protection policies nowadays come with a variety of extra benefits alongside the core cover. Such extras are there to further support your health and wellbeing.

Your policy may include:

• 24/7 virtual GP services
• Physiotherapy sessions, either online or face to face
• Counselling sessions, either online or face to face
• Gym membership discounts
• Second medical opinion services.

You can utilise these wellbeing services outside of a claim, meaning you can benefit from the policy as soon as it’s active. Many of these can be used by your immediate family (spouse / dependent children) too.

What Doesn’t Income Protection Insurance Cover?

Income Protection policies have limitations and restrictions. These apply to all policyholders regardless of factors such as age, health history and smoker status.

Policies typically exclude claims resulting from:

• Self-inflicted injuries
• Substance abuse. E.g. drug or alcohol misuse
• Travel to a country with active internal conflict or political instability, in which the Foreign Office has advised against.

What About Pre-Existing Medical Conditions?

When applying for Income Protection, insurers require you to share your medical history. If you’ve had a health condition in the past five years, the insurer may exclude the medical issue from your policy.

Depending on the condition and severity disclosed, the insurer will either:

• Provide cover for it without a change in premium
• Provide cover with an increase in premium
• Exclude the condition completely.

If you have a pre-existing condition, it’s best to speak with one of our expert advisers. We have direct access to the insurer’s underwriters, placing us in a great position to negotiate the best terms for your policy.

If you need help, pop us a call on 02084327333 or email help@drewberry.co.uk.

Sophie Guiver
Independent Protection Expert

Do I Need Income Protection Insurance?

Whether you need Income Protection is personal to you and depends on many factors. You might consider it if your company sick pay isn’t sufficient or you don’t have any savings to fall back on.

When considering this insurance policy, it’s important to think about what would happen if you couldn’t work for a length of time. How would you cope financially?

Assessing Your Incapacity Risk

Your chances of falling ill or suffering an accident are much higher than most anticipate.

• 9.25 million people aged between 16 and 64 were economically inactive (out of work) from Nov 2023 to Jan 2024
• Nearly 1 in 2 people born in the UK in 1961 will receive a cancer diagnosis in their lifetime
• Over 1.3 million of those inactive were off work because of depression, anxiety, and nerves.

These statistics show just how many people living in the UK experience some form of health condition or illness in their lifetime.

A Lack Of Savings

If you were out of work for a long period, how would your finances fair? This is something to think about when considering Income Protection Insurance.

These statistics paint a clear picture of savings in the UK:

• 1 in 5 people wouldn’t be able to survive longer than a week on their savings if hard times fell upon them
• 34% of adults have either no savings or less than £1,000 tucked away.

Considering the average household spends £2,721 a month on household bills, a loss of income is likely to cause financial hardship. A comprehensive Income Protection policy provides a vital financial safety net should you be unable to work.

State Benefits

Many turn to government support during times of financial instability. However, Employment and Support Allowance offers £90.50 a week if you’re over 25. This sum is unlikely to cover your core outgoings.

While there are other state benefits, such as Statutory Sick Pay (which provides £116.75 a week), these depend on your circumstances and your health. When you consider how much an average household spends on bills, such benefits are not enough.

When Should I Consider Buying Income Protection?

If you’re thinking about protecting your income, it’s best to do it sooner rather than later. Here are some circumstances when you should consider a policy.

When You’re Young and Healthy

A lot of people wait until they realise their health is at risk before getting Income Protection. But you’re likely to face high premiums. You may also find your health condition is excluded from your coverage.

To avoid such pitfalls, the best time to take out Income Protection is as early as possible. The healthier you are when you apply, the more comprehensive and affordable your policy may be. If you choose guaranteed premiums, you’ll then benefit from paying the same low price throughout the policy’s lifetime.

During Significant Life Events And Changes

There are times where we take on more responsibility and realise the importance of protecting your income. This includes:

• Buying a home
  Your home is often the most valuable asset you have, with many people committing their working lives to a mortgage. To ensure you can continue paying your mortgage if you can’t work, Income Protection can help cover these payments
• Changing jobs or receiving a promotion
  Getting a new job is a great time to take out Income Protection—especially if your employer doesn’t offer any financial benefits. Or if they don’t offer sufficient sick pay
• Self employment
  If you’re self-employed, you probably don’t receive the same benefits a regular employee would receive. Self-Employed Income Protection is essential here
• Birth of a child
  An extra dependent joining the family means an increase in living expenses, which is another reason to ensure your income is protected.

Income Protection For The Self Employed And Company Directors

Standard Income Protection is suitable for most people. However, if you’re a company director or you’re self-employed, specialist cover is necessary. It’s likely you don’t have the safety net of an employer.

If you’re self-employed, it’s essential your level of cover aligns with what you declare to HMRC. This helps make sure you don’t over insure yourself and pay for cover you can’t claim on.

Income Protection For NHS Doctors And Dentists

Some professions, such as NHS staff, operate on a tiered sick pay system. The length of time you’re employed determines the amount of sick pay you’re entitled to. For example, during your third year of service, your entitlement is four months’ full pay and four months’ half pay. This might not be enough to cover essential outgoings.

To accommodate this, some insurers have put together specialised Income Protection for doctors and dentists. These policies allow the deferred period to match the individuals full sick pay, yet the policy will pay out limited benefits when they begin receiving half sick pay to top up their income.

If you run your own business and have employees working for you, Group Income Protection is a great benefit to offer. This can align with your sick pay policies and provide essential financial protection.

Rauri Taylor
Independent Protection Expert

Income Protection Or Critical Illness Insurance?

As well as Income Protection, some people also consider Critical Illness Cover. But which one is best? The policies sound similar, although they work differently.

Income Protection pays out a regular monthly income if you’re unable to work for any medical reason. The Best Income Protection will pay out until your retirement age in the event you can’t work again.

Whereas, Critical Illness Insurance provides a single tax-free lump sum if you’re out of work because of a critical condition listed on the policy. Claims are commonly made for cancer, heart attack, and stroke.

At Drewberry™, we recommend you buy Income Protection. This is because it can be difficult to determine how long you could be out of work with a certain illness. And as the payment through Critical Illness Insurance is a single lump-sum, it doesn’t provide ongoing payments to help you cover your household bills.

We’ve created a guide to help you understand the differences between Income Protection and Critical Illness Cover.

If you’d like to talk through your options with an adviser, get in touch. We’ll be happy to help. Call us on 02084327333 or email help@drewberry.co.uk.

Darren Jaynes
Independent Protection Expert

What About Payment Protection Insurance?

Payment Protection Insurance (PPI) and Income Protection are separate protection products designed for different purposes. PPI allows you to keep up with loan repayments if you’re unable to work due to accident or sickness, and potentially, unemployment. Mortgage PPI does the same for a mortgage.

As these policies are typically tied to a loan repayment structure, you can only cover that amount. While your mortgage or loan will be covered, many other living expenses are not.

This is why we recommend Income Protection over PPI, as you insure a portion of your salary against the risk of accident or sickness. We also tend to steer away from PPI because it often comes with more exclusions. For example, no coverage for back pain or mental health conditions. It can also be difficult to make a successful claim.

Factors To Consider When Buying Income Protection Insurance

There are many factors to think about when taking out Income Protection. Some are policy-centric, while others are more personal.

All the following factors can affect the cost of Income Protection:

• Deferred period
  The deferred period is the length of time you’d be willing to wait for your benefit payments to begin after taking time off. Deferred periods begin at 1 day and go all the way up to 104 weeks (2 years). If you have enough savings for a month, for instance, a deferred period of 4 weeks is suitable
• Policy cease age
  This refers to your age at the end of the policy. Typically, you align this with your expected retirement age, which may be 60 or 65. The older your cease age, the more the policy costs. But you’ll be protected for longer
• Level of cover
  Also called “sum assured”, you can cover between 50% and 70% of your gross earnings with Income Protection Insurance. The higher this percentage, the higher the premiums. The amount of cover you need depends on your unique circumstances.

You’ll also need to think about:

• Short-term or long-term Income Protection
  Short-term cover pays out for a maximum of 1, 2 or 5 years per claim. While long-term Income Protection can pay out until your retirement age. This ensures your income is protected for as long as possible
• Indexation
  By index-linking your Income Protection policy, your benefit amount aligns with any changes in inflation rates. So, the value of your policy doesn’t depreciate over time. Your premiums will then reflect any changes to your increased benefit sum.

Premium Type

There are three premium types to choose from when getting Income Protection Insurance.

• Reviewable premiums
  Reviewable premiums can be reviewed and revised by the insurer as they see fit. Premiums may rise to cover a spike in claims or to align with changing economic factors. This type tends to start out cheaper, but may end up more expensive over the policy’s lifetime
• Age-banded premiums
  The same goes for age-banded premiums. These work out cheaper initially but rise each year. Age-banded premiums can only increase by a preset amount stated in the policy. Rises are linked to your age and the higher risk of accident or sickness as you get older
• Guaranteed premiums
  We recommend guaranteed premiums, as these remain fixed over the life of the policy. It may seem expensive at first, but these premiums work out more affordable over time, as they can’t be changed.

Own Occupation Cover

It’s important to get Income Protection which covers you in your own occupation. While there are other definitions of incapacity (suited occupation and any occupation), this type of cover enables you to claim as long as your health prevents you from doing your specific job.

Own occupation is the easiest definition to claim on. Insurers typically use these definitions to determine how capable you are of working and your likelihood of a successful claim.

We always suggest own occupation cover to our clients, as it ensures you can get financial support when you need it most. The moment you’re unable to carry out the duties of your job role, you’re eligible to claim with own occupation cover. Other definitions make it harder for claimants to be successful.

How Do I Make An Income Protection Claim?

Insurers paying out claims is the most important aspect of the protection industry. In recent years, developments have made making a claim easier and faster.

Here’s how making a claim works:

• You become unwell or suffer an accident leading to time off work
• As soon as you think you’ll be out of work for longer than your deferred period, contact your insurance provider
• Provide the insurer with a completed claims form and evidence of your condition
• Wait for confirmation of your claim from the insurer
• The insurer will begin to pay out your benefit once you’ve reached the end of the deferred period
• Then your payments continue until you return to work, reach the policy cease age, or retire (whichever is most applicable to your policy terms).

Should you need to make a claim, our expert advisers are here to help. We’ll ensure your claims form is completed and your claim is dealt with smoothly and quickly.

Neil’s Cancer Claim With British Friendly

Neil is a client of Drewberry who took out an Income Protection policy with British Friendly. He’d had his policy for just 4 years before becoming ill.

After experiencing stomach pains, Neil went to his GP, who referred him for further tests. These tests discovered that he unfortunately had bowel cancer, and it was already at stage 2.

Neil needed surgery to remove the cancer, but developed postoperative sepsis and had to spend several weeks in hospital recovering, completely unable to work.

British Friendly began paying him a proportion of his earnings after his deferral period, allowing him to keep up with all the important bills, such as his mortgage, while he was unwell. 🤕 Read More About Neil’s Claim.

Income Protection Provider Claims Payout Rates

The vast majority of Income Protection providers now publish their claims statistics, which is a real step forward in building trust.

Each year, the Association of British Insurers (ABI) publishes average payout rate statistics from all insurers. Below, you’ll find the most recent payout rates from all the UK Income Protection insurers.

How Much Does Income Protection Cost?

The cost of Income Protection depends on a number of personal and policy-centric factors. To give you a rough idea of how much monthly premium costs, we’ve pulled some quotes below. These are based on:

• Individual is a healthy 35-year-old
• Non smoker
• Works in an office-based job
• Wants a 4 week deferred period
• Needs £2,000 worth of cover
• Long-term policy with a cease age of 65.

Provider

Each Income Protection provider charges different premiums, even if your cover seems pretty much the same. This is because each provider has its own appetite for risk and charges based on this.

Different Providers
£45.19	£63.83

Income Protection quotes accurate as of April 2024

The Deferred Period

The longer your deferred period, the cheaper your premiums. Based on the above policy options, here are example costs from Aviva for different deferred periods.

Short Term Vs Long Term Cover

The duration of the policy payment period impacts the cost. A short-term plan is cheaper than a long-term one. However, it’s important to remember short-term policies don’t provide the same comprehensive coverage as long-term policies.

These cost examples are based on the policy options above.

Your Age

As you get older, you’re more likely to suffer an injury or become unwell. As a result, older applicants face higher premiums. The earlier you take out a policy, the lower the cost.

Smoker Status

If you smoke, your health is more at risk than a non-smoker. Most insurers, although not all of them, charge smokers higher premiums. The below monthly costs are example quotes from Zurich are based on the policy options above.

Your Health

Depending on your health status and the insurer you choose, you may pay more for cover if you have a pre-existing medical condition or an adverse health history.

Your Occupation

What you do for work has an impact. Some jobs are riskier than others, and insurers increase costs to reflect the additional risk. Manual workers, for example, are more likely to have an accident on the job than someone with an office job.

Compare Best UK Income Protection Quotes

Here you’ll find a breakdown of each UK Income Protection provider.

Policy Details & Additional Benefits
Aviva covers all policyholders with an own occupation definition of incapacity. If you choose to return to work in a different occupation until you’re well enough to return to your pre-incapacity occupation, Aviva will top up your reduced income with Back to Work Benefits. Maximum coverage: 55% of your pre-tax salary, up to a maximum of £240,000 per year Deferred periods: 4-104 weeks (104 weeks is the longest available deferred period for UK Accident & Sickness policies) Maximum entry age: 59.
British Friendly gives access to its Mutual Benefits program, which provides rewards such as vouchers for high street shops, discounted fitness tracking devices, emotional support services and online legal services. Maximum coverage: 70% of your pre-tax salary, up to a maximum of £45,000 per year Deferred periods: Day 1 / 1 / 4 / 8 / 13 / 26 / 52 weeks Maximum entry age: 64 One of the few insurers that will cover pilots on an own occupation basis.
Cirencester Friendly provides a range of additional benefits and services, including a hospitalisation benefit and a Friendly Voice service providing a personal nurse you can contact for advice and emotional support. Maximum coverage: 65% of your pre-tax salary, up to a maximum of £65,000 per year Deferred periods: Day 1 or 4 / 8/ 13 / 26 / 52 weeks Maximum entry age: 54.
The Exeter is one of the few UK insurers that is able to offer own occupation cover to workers in higher-risk occupations, although such policies only offer age banded premiums. Maximum coverage: 60% of your gross salary up to the first £100,000 and 40% of any additional income Deferred periods: Day 1 / 1 week / 4 weeks / 8 weeks / 13 weeks / 26 weeks / 52 weeks Maximum entry age: 59.
Legal & General offers a free life cover element that pays out a maximum of 12 times your monthly benefit if you pass away while the policy is in force. Maximum coverage: 60% of your annual income before tax, up to a maximum of £200,000 per year Deferred periods: 4 / 8 / 13 / 26 / 52 weeks Maximum entry age: 60
LV offers free access to unique LV Doctor Services, which include fast access to remote GP services, second opinion services and private prescriptions for policyholders and their children up to the age of 16. Maximum coverage: 60% of your annual income before tax, up to a maximum benefit of £12,500 per month Deferred periods: 1 month / 2 months / 3 months / 6 months / 12 months Maximum entry age: 59.
Royal London can include Fracture Cover, which pays out a lump sum of between £1,500 and £4,000 on top of any benefit you’d receive for being off work if you fracture a specified body part. Maximum coverage: 65% of the first £15,000 income and 55% of the remainder, up to a maximum of £250,000 per year Deferred periods: 4 / 8 / 13 / 26 / 52 weeks Maximum entry age: 59.
Shepherds Friendly allow you to apply to suspend cover and premium payments under your plan for a minimum continuous period of 3 months and up to a maximum continuous period of 24 months. This is known as a ‘Career Break’ option. Maximum coverage: 70% of income up to £49,000 per year Deferred periods: Day 1 / 1 week/ 4 weeks / 8 weeks / 13 weeks / 26 weeks / 52 weeks Maximum entry age: 60.
Vitality provides a unique offering. While the core of its policy is similar to other providers, it also offers a set of additional benefits to those who participate in the Wellness / Optimiser programs that can include policy discounts and rewards. Maximum coverage: 60% of your earnings capped up to £2,500 per month and 50% of any earnings above, up to a maximum of £16,666 per month Deferred periods: 1 week / 1 / 3 / 6 / 12 months Maximum entry age: 59.

Get Income Protection Quotes & Expert Advice

Understanding your options and how best to set up a policy can be a bit of a minefield. There are many factors to think about and just as many to adjust your policy for your needs.

To avoid any pitfalls, it’s best to speak to an expert. Here at Drewberry, we can help to ensure you buy the right Income Protection for the most competitive price. If you need any help, get in touch by calling 02084327333 or email help@drewberry.co.uk.

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We all deserve a first class service when it comes to issues as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

• There is no fee for our service
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• Claims support when you need it most.
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