How to get cheaper income protection insurance

If you’re made redundant or find yourself unable to work due to an accident or illness, income protection insurance will provide you with financial support.

Find out what affects the price of your policy and how to cut the cost of your premium with our money-saving tips.

How much does income protection insurance cost?

Income protection insurance provides you with financial support if you find yourself unable to work due to an accident or illness, or if you’ve been made redundant in some cases.

The cost of your policy will depend on several things including your age, general health, smoking status, the percentage of your income that you choose to be insured for (the lower the percentage, the cheaper the premium) and the length of your policy.

For an idea of what it could cost you and how different policies stack up against each other, get quotes for income protection insurance.

What factors influence the cost of income protection insurance?

There’s lots of factors that are considered when insurers calculate your premium, including:

Your age

Older people are seen as at more of a risk of being off work with things like long-term illness. So they’ll generally be quoted higher premiums than younger people.

Your health

Providers will typically charge lower premiums to healthier people as they’re seen as less of a risk.

So, if you have a history of illness, you’ll be charged more than someone with a clean bill of health because there’s more chance you’ll need to claim on the policy.

If you have a particular health condition it might even be excluded from the policy.

When you take out income protection insurance, you’ll also be asked about other health-related issues like whether you smoke, as this will usually increase your premiums. You’ll be asked for your weight and height, too. If your BMI is high, you could be charged more.

Your occupation

Some jobs put you at risk of accidents more than others, so you can expect higher premiums if you do certain manual jobs, for example.

How long your income payments last

You can choose between short-term or long-term income protection insurance policies.

Short-term policies pay out for a limited amount of time – normally between 12 months and two years (it will differ between insurers). This makes them cheaper than long-term policies which will pay an income for a longer period of time. This could be until you’re well enough to return to work or even until retirement.

How soon income payments kick in

All policies come with a deferral period. That’s the amount of time you need to wait between when you first become unable to work and the time you start receiving an income from the policy.

You can choose the deferral period you want. Depending on the policy, it can be anything between a month to a year.

The longer your deferral period, the cheaper your premiums are likely to be and vice versa.

The amount of cover you choose

You can take out cover that amounts to a maximum of 70% of your gross salary, but you can choose a lower percentage. The lower the percentage of your income that you opt for, the cheaper your policy premiums will be.

Take care with premium types

The premium type you choose can have a big effect on the cost of your policy.

Some premiums rise over time, so you should feel confident that you’d be able to afford the policy over its entire term.

Typically, there are three types to choose from:

Reviewable premiums

Here, your premiums aren’t guaranteed to remain the same for the term of your policy. The insurer regularly reviews the policy and, depending on certain factors, can increase your monthly payments.

Usually, your premium won’t change within the first few years of the policy starting, but it could fluctuate annually after that. You have no control over how much you’ll pay and can’t know for sure the total cost of the policy over its full term.

In some cases, you can choose to continue to pay the previous amount instead. But if you do this, the insurer will reduce the amount of cover.

Guaranteed premiums

A guaranteed premium means the amount you pay monthly remains fixed for the duration of the policy. The insurer ‘guarantees’ not to change your premium amount (unless you make a change to your policy, such as increasing your cover). This means you can budget easily for payments knowing they won’t change unexpectedly.

Age-related premiums

An age-related premium may start out cheaper than a guaranteed or reviewable premium, but monthly costs can rise significantly with age. Some age-related premiums increase at a rate guaranteed in advance (so you at least know ahead of time if the premiums will be affordable in the future). These might be called age-related guaranteed premiums.

Other age-related premiums increase at rates which can change. They’re often called age-related reviewable premiums.

How can I get cheaper income protection insurance?

Here are a couple of tips to help knock down the price of your income protection insurance:

Shop around

Do your research and consider the type and level of protection best suited to your circumstances before committing.

You can easily compare multiple policies and providers to get tailored quotes with our quick and easy comparison tool.

Don't overinsure

Income protection policies typically allow you to specify the level of cover you require as a percentage of your existing gross annual salary. They’ll usually have an upper limit on the amount you can be insured for - often between 50-70% of your income.

The level you choose depends on how much money you’d need to cover your monthly outgoings, like your mortgage, utility bills, everyday living expenses and any other regular payments.

Once you’ve factored in any savings you have and if you’d be eligible for a redundancy payout or government benefits should you be unable to work, then you’ll have a good idea of the percentage of your salary you need to cover.

Remember, the lower the percentage you choose, the cheaper your policy will be. So, it’s sensible to not overestimate the payout you’d need or you could be paying unnecessarily high premiums.

Cover the right ‘class of occupation’

You may be asked by the insurer what class of occupation you’d like to cover - ‘own occupation’, ‘suited occupation’ or ‘any occupation’.

The most comprehensive form of cover (and therefore usually the most expensive) is for ‘own occupation’ as it means you can claim if you’re unable to do your specific job, and won’t be expected to take on a different role.

With the other types of policies, the insurer may expect you to return to work but in a different role which you’re medically capable of carrying out. Premiums for these types of policies may cost less, but they provide a lower level of cover.

Short-term policies will be cheaper

You can choose between short-term or long-term income protection insurance policies.

Short-term policies pay out for a limited amount of time – normally between 12 months or two years per claim (it will differ between insurers). This makes them cheaper than long-term policies which will pay out an income until you’re well enough to return to work or even until retirement.

Pick a longer deferral period

The deferral period of your policy is the time you have to wait between when you first become unable to work and when you start receiving an income from the policy.

You can choose a deferral period of anything from four to 52 weeks. The longer your deferral period, the cheaper your premiums are likely to be.

When choosing your deferral period, first find out your employer’s sick pay policy (how long you’d be paid by the company if you fell ill or were injured and couldn’t work).

If they’d pay your salary in full for, say, three months, then you could opt for a three-month deferral period (rather than the minimum one-month deferral period) to keep premium costs a little lower.

You could make the deferral period even longer if you have enough savings set aside that you could dip into too.

Try to adopt a healthier lifestyle

Providers will typically charge lower premiums to healthier people as they’re seen as less of a risk.

When you take out income protection insurance, you’ll be asked things like whether you smoke as this can increase your premiums. You’ll also be asked for your weight and height. If your BMI is high, you could be charged more.

Investigate switching income protection provider

Depending on when you bought your policy, there may be better products on the market now. Or your provider may offer enhanced benefits on new packages. Either way, you may be missing out on a great deal.

For example, many providers now include things like ‘fracture cover’, which pays out a lump sum if you suffer a specified bone fracture, and enhanced support to help you get back to work.

It’s worth talking to your own provider to see if your policy can be adapted to include any enhanced cover that they’re offering on new packages.

If you’re thinking of switching provider completely, consider consulting a financial adviser as it may not benefit you. For example, applying for a new policy when you’re a lot older than when you took out your initial cover can mean it will be more expensive.

Regularly review your policy

Financial and personal circumstances can change with time, so it’s wise to keep tabs on your policy and review it annually to check that you still have enough cover. This is especially the case if you change jobs, move home and increase your mortgage or start a family.

If your income tends to fluctuate, for instance if you’re self-employed, you may want to check how this affects your potential payouts. You might need to adjust your insurance so you don’t end up paying for cover you can’t claim.

Consider self-insuring

Putting away money and building up your savings can help provide a cushion if you were unable to work. You’d need a significant sum to match the sort of payouts that a long-term income protection policy pays out though. Do the maths and figure out if it’s doable.

Can I get joint income protection?

Income protection can only be taken out as an individual policy and not on a joint basis.

That’s because each policy is underwritten for the individual, taking into account things like occupation, income, age and health.

Both you and your partner can take out separate policies, though.

Get the right cover for your circumstances

Choosing the right level of cover will depend on a few different things including what financial commitments you have, whether you have rent or a mortgage to pay and if you’re currently paying off any other debts.

Other things to consider are whether or not you have savings and a family who rely on your income.

Depending on your particular circumstances, a cheaper short-term income protection policy might suit you better as opposed to more expensive long-term income protection options.

Do I need unemployment cover?

This pays out if you lose your job through no fault of your own or are made redundant.

It doesn’t cover voluntary redundancy or if you get sacked from your position or decide to leave your job.

This type of cover usually comes as part of a comprehensive accident, sickness and unemployment policy.

Before you decide if you want to take out unemployment cover, you should consider your circumstances, job security and the redundancy packages offered by your particular employer.

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

Picking the right cover type can have an impact on how much you pay. Choose between:

Level cover

Your amount of cover is fixed from the start and won’t change or keep up with inflation. So, in effect, your policy will be worth less in the future. This type of policy could work if you expect your essential outgoings to lower in a few years. For example, when children leave home or you’ve paid off your mortgage.

Inflation-linked cover

The amount you’re covered for will increase in line with inflation. Of course, this means that your premiums increase, too.

Do I need a waiver of premium?

You can choose to insure your premiums by adding on a waiver of premium policy.

This means that, if you fell ill or had an accident that left you unable to work and you couldn’t keep up with the payments on your policy during your deferral (or waiting) period, then the insurance would cover the cost of your premiums during this time to ensure your policy doesn’t lapse.

Should I take out multiple income protection policies?

It’s possible to take out more than one income protection policy. But don’t make the mistake of doing this to try to cover 100% of your salary.

In the event of a claim, insurers will ask you about any other income protection or accident, sickness and unemployment plans you may have. If you have other policies, they’ll then restrict the claim value to an amount which (together with income from your other policies) does not exceed the maximum percentage of your gross salary allowed.

So, for example, if you took out two policies both covering 50% of your salary, and both insurers have a maximum limit of 50%, then you’d still only receive 50% of your salary (and not 100%). So, the premiums you’ve paid on one of your policies will have been totally wasted.

The issue, of course, is that insurers need to be sure you’re not left with the same income as you’d have if you were in work, or there’s little incentive to go back to it.