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Compare income protection insurance policies, to find a policy that can help cover your outgoings if you’re unable to work due to an accident, sickness or redundancy.

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What is income protection?

Income protection is a type of insurance that pays out tax-free cash if you cannot work due to an accident, redundancy or sickness. It is designed to give you peace of mind so that your household bills and expenses are covered for the time when you are off work.

It is a form of loss of earnings insurance which means that you are covered if your income drops due to accident, illness or redundancy. It could help you manage your debts during a difficult time.

A good income protection policy can help you prepare for the unexpected, whether that is illness, an accident, or being made redundant. People sometimes refer to it as accident insurance, redundancy insurance, or sickness insurance.

Income protection can provide peace of mind that you can cover your essential outgoings while you are not earning some or all of your usual income.

How does income protection insurance work

Income protection insurance gives you cover if you need to make a claim because you are unable to work.

When you buy income protection cover you decide how much income protection insurance you need or can afford, and then you pay a monthly premium.

It is not a savings product and there is no payout at the end of the term. If you do not need to make a claim during the life of the policy then you will not receive any cash. It is like other types of insurance in that you are protected as long as you are paying the regular premium, but if your payments stop, so does the cover.

There are two different types of income protection cover – short term and long term income protection cover:

Short term cover

Short term income protection only lasts for a short period of time. This is generally between two and five years.

If you need to claim on a short term income protection policy and your claim is successful, you will receive a monthly sum from the insurer to help you cope with bills and expenses. However, this payment is not indefinite and runs out after a set period of time, depending on the terms and conditions of the policy. In addition, short term cover may cover fewer illnesses or issues. It tends to be cheaper than long term cover.

Long term cover

Long term income protection insurance is sometimes known as permanent health insurance.

If you can’t work due to illness or injury, a long term income protection policy will pay you a regular income until you are able to get back to work. Alternatively, if you are not well enough to go back to work it will pay out until you retire, or die, or the policy term ends. The length and scope of the policy depends on the option you choose when you first take it out.

What is covered?

Income protection insurance is designed to help you out financially if you are affected by an unexpected life event such as:

  • Redundancy

  • Unemployment

  • Illness

  • Loss of salary

  • Sickness

  • Accident

You can choose from three basic levels of income protection cover:

  • Accident and sickness protection

  • Unemployment protection

  • Accident, sickness and unemployment protection

Accident and sickness protection will pay out if you are unable to work after an illness or injury.

Unemployment protection will cover you if you’re made redundant or lose your job unexpectedly. However, your insurer will not pay out if you simply quit your job or if you accept voluntary redundancy.

Accident, sickness and unemployment protection is the most comprehensive type of policy and will cover you for the above. It is also likely to be more expensive. What is covered in your policy may vary depending on the insurer, so it is important to check your policy documents to make sure what’s included.

What are the different types of Income Protection?

The type of cover you need will depend on your lifestyle, whether you have a family or other dependants, and the existing insurance that you may have at your workplace.

Your employer may already provide cover for sickness and accident, so it is worth asking first.

Mortgage protection insurance

This covers the cost of repaying your mortgage if you are unable to work due to sickness, injury or redundancy. Find out more about how mortgage protection insurance works.

Redundancy insurance

This is often called unemployment insurance because it pays out if you lose your job and need cover for household expenses should your income drop as a result. See our covid-19 disclaimer above.

Accident and sickness insurance

If you are injured or ill and unable to work this covers you until you are well enough to restart work by paying a regular replacement income based on the sum you have insured.

Loan protection insurance

If you have a lot of personal loans, or one large loan, and you would struggle to make repayments if your income dropped, you can take out cover to help pay the monthly instalments.

Who needs income protection insurance?

If you don’t have any income protection insurance or long term sickness pay at work, or you are self-employed or freelance, then you might benefit from having income protection cover.

If you would struggle to pay the bills if your income dropped then you might consider comparing income protection insurance.

How much cover do I need?

You can work out how much income protection cover you need by adding up all your monthly household outgoings and expenses. This includes mortgage or rent, food and utility costs, and any other regular costs that are likely to crop up. You could also include credit card bills and personal loan instalments.

How much does income protection cost?

The cost of income protection cover will depend on your income or the amount you want to cover, the policy type, the length of the policy and your age. Like life and health insurance, smoking can have an impact on the cost of your income protection insurance due to the health risks associated with the habit.

The level of protection provided by the three types of policy is reflected in the amount you will pay, with the most comprehensive cover likely to cost more. The top tier of policy covers you for injury and illness as well as unemployment, so it provides you with more protection than a basic accident and sickness policy.

Income protection cover is usually priced as a monthly premium. Your premiums will not necessarily stay the same for the duration of the policy, especially if you’ve taken out protection until you plan to retire. When you compare policies you’ll be able to choose from policies that are fixed for the duration of cover or those that are subject to a yearly review.

The best way to find a good-value income protection policy is to shop around. You can do this quickly and easily by comparing quotes. Simply answer some questions (you will be asked questions about your employment, the type of cover you want and personal details including whether you are a smoker) and you’ll be able to compare policies and quotes from leading income protection insurance providers including Aviva, Vitality and Legal & General.

How does the process work?

Income protection allows you to set the amount that you would like to receive if you are unable to work for one of the reasons specified in your policy. Most insurers will allow you to cover 55% of your monthly gross income, with a maximum level of 70%.

As an example, if your take-home pay each month is usually £2,000, you’ll be able to take out income protection cover for up to £1,400 per month.

While the product is known as income protection, you can choose to protect your income, your mortgage, a loan or credit repayment, or any other financial commitment. You should think about these essential outgoings when deciding on the level of cover to take out.

If you make a successful claim, your insurer will pay out the agreed amount in a monthly tax-free payment until you’re back in work or until the end of the maximum claim duration (most policies will pay out for a maximum of 12 months at a time).

Find out more

If you use our comparison tool to get a quote for income protection insurance you will be able to see the products on offer from different insurers. You will just need to put in some personal details and decide what you want the cover to protect and how much you need to cover.

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