Income protection insurance

What is income protection insurance?

The purpose of income protection insurance is to replace your income with a monthly payout if you are unable to work due to an injury or illness. The maximum amount you can claim is usually your net monthly earnings after tax, minus any state benefits that you may be able to claim – typically this is in the region of 55-65 per cent of your gross earnings. Income protection is designed for anyone who has dependents or anyone that might struggle to meet financial commitments if they are unable to work.

What types of income protection insurance are available?

There are several types of income protection insurance policies:

• Guaranteed policies – This is where the premium you pay stays the same throughout the policy term unless you increase the cover available. This is normally the most expensive type of policy in the short term but can be more cost effective in the medium and long-term.
• Reviewable policies – These are reviewed regularly, usually annually, meaning that your premiums could increase due to your age or changes to your health. They usually start cheaper than guaranteed policies but could be more expensive in the long term.
• Age-related policies – These policies increase every year in line with your age, but you will know in advance what these increases will be. They are particularly popular among those who, typically, are more likely to make a claim, such as such as smokers and those with high-risk occupations.

What should you look for from an income protection policy?

In addition to a regular monthly payout, some policies may offer additional benefits. These can include terminal illness cover, which is often offered as an optional extra for an additional premium, a lump sum at death; a waiver of premiums, which provides cover for your premiums while you are incapacitated; and support for rehabilitation. When taking out a policy you should be wary of exclusions that could invalidate a claim – for example, most insurers will not pay out for absences from work caused by self-inflicted injuries.

How to choose the right income protection insurance policy

Income protection policies vary widely based on a number of factors including your age, gender, medical history, occupation, whether or not you smoke and your alcohol consumption. As such, there can be substantial differences in the quotes you receive from different providers. Though you can buy directly from banks, building societies, insurance companies and financial advisers, it is often more cost effective to take a thorough overview of the market before you buy to find a policy that's right for your needs.

Be sure to enter all your information accurately, as omitting or providing inaccurate information may invalidate your claim. Before deciding to purchase a policy you should ensure that the terms of the policy meet your demands and needs.

For more information, read our income protection insurance guide.