Income protection insurance will pay a regular income if you're unable to work because of sickness or disability. It will continue until you return to paid work or you retire.
The amount of income you're allowed to claim won't replace the amount of money you were earning before you had to stop work. It is a monthly benefit that pays up to 75% of your income while you're unable to work, based on your earnings prior to making a claim. It can be particularly beneficial if you’re self-employed and don’t receive sick pay.
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What is Income Protection Insurance?
Income Protection Insurance is a policy designed to replace your income if you're unable to work due to illness, injury, or disability. In the UK, it typically provides a percentage of your regular income, usually between 50% to 70%, to help you cover essential expenses such as your mortgage, rent, and bills. Unlike critical illness cover, which offers a lump sum payout, income protection provides ongoing financial support until you can return to work or reach retirement age.
Why?
Financial Security: Income Protection ensures that you maintain a stable income stream if you’re unable to work due to illness or injury.
Mortgage Protection: With the rising cost of living, protecting your mortgage repayments with income protection can give you peace of mind in case of unexpected job loss or health issues.
Employer Sick Pay Limitations: Many employers only provide limited sick pay, making it essential to have your own coverage in case your off work for extended periods.
Long-Term Stability: Whether you're self-employed or employed, Income Protection Insurance provides long-term security for you and your family.
Choose the Right Income Protection
When looking for the best Income Protection Insurance in the UK, consider the following:
- Assess Your Financial Needs: Understand your regular expenses, including your mortgage, bills, and dependents.
- Choose Coverage Duration: Decide whether you need short-term protection (1-2 years) or long-term protection (until retirement).
- Review Waiting Periods: Choose the deferment period that suits your financial situation. Longer waiting periods usually result in lower premiums.
- Understand Policy Exclusions: Always check the conditions and illnesses that are excluded from coverage.
- Compare Policies: Use online comparison tools or consult with a financial advisor to find the best income protection policy at the most competitive rates.
- Understanding Income Protection Insurance Costs
The cost of Income Protection Insurance in the UK varies depending on several factors:
- Age: The older you are, the higher your premiums.
- Occupation: High-risk jobs (e.g., construction, healthcare) may lead to higher premiums.
- Health and Lifestyle: Smokers or individuals with pre-existing conditions often face higher costs.
- Policy Features: Shorter waiting periods or longer coverage terms typically lead to higher premiums.
- To reduce costs, you can adjust your coverage amount or defer the policy’s start date to a longer waiting period.
Income Protection vs. Critical Illness Cover: What’s the Difference?
While both Income Protection Insurance and Critical Illness Cover offer financial protection, they serve different purposes:
- Income Protection: Provides ongoing monthly income replacement if you're unable to work due to illness or injury.
- Critical Illness Cover: Pays a lump sum if you're diagnosed with a specific, serious illness like cancer or a heart attack.
- Many people in the UK choose to combine both policies for comprehensive coverage and peace of mind.
How does income protection work?
Income
Income Protection provides regular payments that replace part of your income if you’re unable to work due to illness or an accident. This is typically between 50% and 75% of your income.
Payout
Income Protection will pay out until you can start working again - or until you retire, die or reach the end of the policy term - whichever is sooner. It can be claimed as many times as you need to while the policy lasts.
Cover
Income Protection covers most illnesses that leave you unable to work - either in the short or long term (depending on the type of policy and its definition of incapacity).
Arrange a Financial Services Consultation
As well as helping you secure the perfect mortgage, Rettie Financial Services can support you with a full range of protection products. Book your free initial financial services consultation today with one of our Mortgage & Protection Advisors.
What's a deferred period?
There’s often a waiting (‘deferred’) period before the policy starts to pay out. The most common deferred periods are 4, 13, 26 weeks, a year and two years. The longer you’re able to wait, the lower the monthly premiums.
Before deciding on your deferred period, you should first find out what other benefits you’re entitled to if you’re unable to work. For example, some employers have group income protection insurance in place for employees. Always look at your sick pay arrangements in your contract of employment first as this as may help you align your deferred period with the point when your income drops.
How long does it last?
Most income protection insurance policies are short-term as they pay out for a set period, usually up to two years.
Long-term income protection is available too and will provide a regular income for a longer, pre-agreed period or until you are well enough to return to work. Unlike most short-term income protection policies, it will generally not cover you if you are made redundant.
A policy with an 'own occupation' definition of incapacity is the most comprehensive you can choose as it will allow you to make a claim if you become too ill or injured to carry out your specific job and its associated tasks.
A policy with a 'suited definition' is less comprehensive and may require you to take on a different job role if you’re unable to do your own.
How much cover should I have?
Depending on the level of savings you have, the loss of an income can soon leave you unable to pay essential household bills. You should think carefully about how much you need each month to get by, so that you don't end up under-insured.
Make sure you consider all your essential monthly outgoings such as your mortgage, food, council tax, utility bills, car finance and any unsecured borrowing.
At Rettie Financial Services we understand.
At Rettie Financial Services we understand that everybody’s situation is different. That’s why we’re with you every step of the way. Whatever your mortgage, insurance or other financial needs, and however complex your circumstances, Rettie Financial Services have the expertise and experience to provide a tailored service that will deliver for you.
Outstanding Customer Service
Rettie Financial Services excels in expertise, speed, and customer satisfaction. Our commitment to you extends beyond mere transactions, providing both financial and emotional support throughout your journey.
Personalised Solutions
Rettie Financial Services bring a personal touch to every interaction, taking time to understand and address your unique financial needs. No matter how complex and intricate your insurance or protection needs, we have the experience and knowledge to identify and deliver an innovative personal solution that’s right for you.
A Proven Approach
Our highly experienced Rettie Financial Services Mortgage & Protection Advisors have a proud track record in delivering a supportive, quick and hassle-free service, as shown by a constant stream of 5 star reviews from our satisfied clients.
FAQs for Income Protection
- Can I get Income Protection if I’m self-employed?
Yes, Income Protection Insurance is particularly valuable for self-employed individuals, as they don’t receive sick pay from an employer.
- How soon do I start receiving Income Protection payments?
Income protection payments begin after your chosen waiting period, which typically ranges from 4 weeks to 12 weeks.
- Can I have multiple Income Protection policies?
Yes, you can have multiple policies, but the total payout across all policies generally cannot exceed your usual income.
- Does Income Protection cover redundancy?
Usually, Income Protection Insurance does not cover redundancy, although some providers offer optional unemployment coverage as an add-on.
- What illnesses are typically covered by Income Protection?
Most Income Protection policies cover a wide range of illnesses or injuries that prevent you from working, but always check your specific policy for exclusions.
Rettie Financial Services Ltd is an appointed representative of Mortgage Advice Bureau Limited and Mortgage Advice Bureau (Derby) Limited which are authorised and regulated by the Financial Conduct Authority.
Rettie Financial Services Ltd. Registered Office Address: Deuchrie, Dunbar, East Lothian, United Kingdom, EH42 1TG. Registered in Scotland Number: SC711925.