Income protection insurance
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- What is income protection insurance?
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Jump to section
- What is income protection insurance?
- Useful links
Why compare income protection insurance?
Income protection insurance can provide you and your family security and peace of mind should the worst happen.
Comparing quotes through mustard.co.uk can help you find the right insurance policy for you at the right price, so you can relax knowing that you and your family are protected.
Income Protection FAQs
What is income protection insurance?
It’s a broad term used to describe a range of insurance types that are designed to provide you with a monthly income if you become unemployed, typical policies include:
- Unemployment insurance which covers you if you find yourself out of work through no fault of your own, such as with compulsory redundancy (it is also sometimes known as ‘redundancy insurance’)
- Accident and sickness insurance which provides an income if you become ill or are injured and can’t work
- Accident, sickness and unemployment insurance (ASU cover), which offers combined cover and pays out if you become unemployed through illness, injury or redundancy.
Monthly payments are tax-free (as you’ve already paid tax on the premium) so the most you could receive is around 70% of your usual monthly salary, although this varies by insurance provider. You can of course, decide to cover yourself for less than this – which in turn, will lower your premium, but bear in mind this may impact your ability to meet all your day to day expenses.
Read more in our online guide.
Do I need income protection?
If losing your job means you’d struggle to meet your regular monthly outgoings (such as your mortgage or rent) then it’s definitely worth considering having some sort of income protection. Having appropriate cover means you can concentrate on getting yourself back into work without worrying about the financial implications of losing your main source of income.
See our online guide for more help on deciding which policy is right for you.
How long does a policy last?
You can choose policies that cover you right up until retirement and beyond although some policy holders limit the term in line with their last mortgage payment – so for example, if you had a further 15 years to pay off on your mortgage, the income protection policy would also be set at 15 years.
How long does the payout last?
Broadly speaking, income protection policies can be divided into:
- Short-term policies which usually limit payouts to a maximum of two years, these are aimed at providing temporary cover until you can get back into work.
- Long-term policies which provide cover if you become ill and cannot go back to work, these plans will give you an income until the policy term ends or you retire (whichever comes first).
How much do income protection policies cost?
As with most types of insurance, cost is influenced by risk so the more likely you are to make a claim, the higher your premium. With that in mind, factors including age, medical history and occupation all help determine the premium. The type of policy you have also affects the price – such as whether you choose:
- Guaranteed policies – this guarantees the price of your premium for the life of the policy, because the premium is set, they do offer better long-term value even though they tend to be the most expensive type of policy on the market.
- Reviewable policies – these policies are regularly reviewed by providers to take into account how old you are and the changing state of your health. While these policies can start off affordable, they can end up being expensive due to age and declining health.
- Age-related policies – the cost of premiums increase as you get older, similar to reviewable policies, they initially offer great value but can eventually become costly.
What are income protection occupation classes?
To help decide the cost of your premium, insurers also classify policies into one of three types of occupation class:
- Own occupation
- Suited occupation
- Any occupation.
The occupation class of your policy will determine under what circumstances your policy will pay out. The most comprehensive (and expensive) category is own occupation cover which means you will receive compensation if you cannot work in your current (own) occupation.
On the other hand, any occupation cover will only pay out if you are unable to carry out any job, while suited occupation cover is between the two and would only pay out if you couldn’t find work in a related or ‘suited’ profession.
For example, if you were a teacher and signed off sick due to stress, you would receive income protection payments if you had an own occupation policy (because you could not go back to your job as a teacher).
If you had a suited occupation policy, then your insurer would only pay out if you couldn’t find a job in a related field (so if you found a job as a teaching assistant then you wouldn’t receive compensation as it is a ‘suited’ position).
If you had any occupation cover (the cheapest form of income protection insurance) then it is unlikely that you would receive any payout if you were otherwise physically fit to work in any other role (such as a store assistant or receptionist).
What is group income protection?
Unlike personal income protection taken out by individuals, group income protection is usually organised by employers and provides a monthly payment to the employee in the event of sickness or injury. In some cases, policies may also help with rehabilitation costs to help staff get back to work quickly – minimising disruption to the business.
As the policy is owned by the employer, they set the cover amount (usually based on the employee’s earnings) as well as the policy period.
What is self-employed income protection?
While working for yourself can have many benefits, sick pay is not one of them, meaning if for some reason you are unable to work, such as due to injury or sickness, you might find that you are unable to continue to bring money in. This could impact you and your family if you find yourself unable to cover bills and could also mean that you are not able to pay staff wages.
That is where income protection for the self-employed comes in. It can protect you for mortgage payments, outstanding debts and employee salaries.
What are the benefits of income protection?
Income protection can provide you with genuine peace of mind knowing that you would still receive an income if you became ill, were injured or were made redundant. Having a policy in place simply means you can concentrate on finding a new job or on getting better without worrying about money. Some policies might also provide additional benefits such as meeting the cost of treatment.