Earnings Insurance is designed to pay you a percentage of your monthly income should you be unable to work due to any illness or injury.
The monthly income these policies offer allows you to keep up with all of your essential outgoings, such as bills, mortgage / rent, groceries etc.
- Typically you can cover up to 70% of gross (pre-tax) earnings
- Opt for either short term cover where a claim would be paid for 1, 2 or 5 years or traditional long term cover which would pay a claim right up to retirement should you be unable to return to work.
- Add on Unemployment Insurance for short term cover against forced redundancy
EXPERT OPINION 🤓
According to Which? Money, Income Protection is the one product every working adult should consider
Do I Really Need Loss of Earnings Insurance?
Most people want to protect their income against an illness or injury that keeps them from working. If you were laid up in bed after an accident or period of sickness, how would your finances cope?
Statistics show…
The risk of illness and injury – particularly long-term illness and injury – is higher than many people think and so getting this type of protection in place can provide an essential lifeline during such times.
In general, we underestimate how important our earnings are. We insure our homes, holidays, cars and even our pets but forget to cover what pays for everything – our salary.
Is Government Support Sufficient?
Too often government benefits, such as Employment and Support Allowance (ESA), simply aren’t sufficient to maintain household expenditure if you lost your income through illness or injury.
IMPORTANT STATISTIC 🧐
ESA, for instance, starts from just £90.50 per week if you’re over 25.
While there are other benefits available, qualifying for government incapacity payments has also become increasingly difficult. Many ESA claims are declined, so it’s has never been more important to make your own provisions.
Many people think they’d be able to rely on the state if they couldn’t work, but for most of us incapacity benefits just aren’t enough to fully support us.
Who Needs Earnings Insurance?
Income Protection is an insurance policy we believe all working adults who rely on their income to meet their bills should consider. However, there are some groups of people who are more vulnerable and who we therefore feel would see particular benefit from this cover:
- The Self-Employed
Working for yourself has a lot of benefits, but usually comes at a cost of an employer sick pay package. Without this, you’d need to rely on government incapacity benefits – would these be enough?
- Company Directors
Company directors also don’t usually receive sick pay from their limited company set-up and are therefore particularly vulnerable to illness or injury stopping them from working. This is despite a number of Income Protection options aimed specifically at directors.
- Those Without Sick Pay / Savings
Even those working for an employer sometimes don’t get any sick pay, or would only receive it for a limited period, and if you don’t have the means to support yourself with savings you’re especially at risk.
- Risky Occupations
Some jobs are particularly risky, such as those involving manual work where the risk of on-the-job injury is higher than for desk workers and what seems a fairly minor injury could prevent you from working. Other jobs have a low threshold for being signed off sick, such as pilots, where anything other than excellent health could prevent you from flying.
Who Doesn’t Need Income Protection?
We also recognise that some of us may be fortunate enough that we wouldn’t benefit from protecting our earnings. This might be if:
- You have enough savings to support you long-term
- You could afford to shrink your spending to live off state benefits
- You can live without your income by relying on a partner
- You long term employer provided sick pay
Remember, even those with employer sick pay may not get enough to see them through long-term.
Our research has found that the majority of workers get less than 3 months’ full sick pay – how would you cope after that ran out and you were still unable to work?
What Doesn’t Loss of Earnings Insurance Cover?
On the Accident & Sickness element of the policy, there are typically very few standard exclusions. Those exclusions which do exist mostly relate to:
- Self-inflicted injuries
- Illness and injury caused by drink or drugs
- Illness and injury contracted in the pursuit of illegal activities.
While there are few standard exclusions, what you are and aren’t covered for is determined by your medical history.
You’ll be asked a series of medical questions when you take out the policy; any pre-existing conditions you’ve had within the past 5 years could be excluded.
However, there may be an opportunity to add these conditions back on to your policy at a later date if you go a set period without any advice, treatment or medication for that condition.
Unemployment Insurance
If you choose to add Unemployment Insurance, exclusions tend to be broader. For instance, you typically won’t be able to claim on Redundancy Cover if:
- You work part-time
- You knew / were warned of the risk of redundancy when you took out the policy
- You left work voluntarily (except to be a carer for an immediate family member)
- You become unemployed due to your own misconduct, fraud or dishonesty
- Your unemployment is the result of industrial action
- You’re self-employed or a company director (as even if you’ve got no work coming in, you’re still technically employed by yourself).
How Does Loss of Salary Insurance Work?
There are four main decisions you’ll need to make when taking out this insurance:
- Your Level of Cover
How much you’ll receive from the insurer each month should you need to claim. You can insure between 50% and 70% of your pre-tax (gross income), but the more you cover the more expensive the policy, so it may just be worth considering covering core essential outgoings.
- Your Deferred Period
How long you can wait before you need the insurance to start paying out. Deferred periods start at 1 day and run up to 2 years, with longer periods working out cheaper than shorter ones. Consider how long you could survive on savings and any sick pay you might receive and then set the deferred period for that length of time.
- Your Length of Cover
Policies can run all the way up to age 70, but the longer you run a policy for the more expensive it will be. Consider aligning the end of the policy with your expected retirement date, when your pensions may kick in and take over, for example.
- Choosing Short or Long Term Cover
Short-term policies will cover you for a maximum of 1, 2 or 5 years per claim. While this would be sufficient to get over most minor illnesses, it’s unlikely to be enough for a severe illness and obviously won’t be enough if you could never work again. Long-term protection will cover you until the end of the policy, paying out until you retire.
Type of Premiums
There are three types of premiums for Wage Insurance:
- Reviewable premiums
These premiums can be ‘reviewed’ by the insurer and can therefore rise in a number of circumstances, such as if the insurer has seen a claims spike, or based on economic factors. Such premiums usually start out cheaper but are then reviewed upwards and tend to work out more expensive over the life of the policy.
- Age-banded premiums
Age-banded premiums also work out cheaper at the start but then rise each year. Unlike reviewable premiums, age-banded premiums can only rise by a preset amount laid out in your policy documents and any rises are solely linked to your age and the increasing risk of you claiming as you get older.
- Guaranteed premiums
Work out more expensive initially, but cannot be increased over the life of the policy unless you yourself make any changes to the plan. This generally means guaranteed premiums work out cheaper over the life of the policy, especially if you take out cover when you are young and healthy, as premiums are locked in from the start and can’t change with time.
Drewberry doesn’t tend to recommend reviewable premiums to most clients. The way insurers apply these increases makes it difficult to know how much your Earnings Insurance will cost from year to year.
Indexation
When you index-link your policy, you’re ensuring that the benefit will rise each year in line with inflation. This prevents the purchasing power of your payout from being eroded over time.
Think of the cost of a pint of milk today compared to 10 or 20 years ago – it’s significantly more now than it was back then! This is because inflation has pushed up the price over time.
Most consumer prices are impacted by inflation, so if you intend to have the policy over the long-term we’d recommend considering indexing your policy.
The insurer will write to you each year detailing the rise in the retail prices index and informing you that, if you agree, they’ll raise your benefit by the rate of inflation and increase your premiums accordingly to take this rise into account.
Your Definition of Incapacity
Different policies use different definitions of incapacity that define when you are entitled to claim benefits.
The best Earnings Protection will cover you under an ‘own occupation’ definition of incapacity, meaning you’re covered if you can’t do your specific job.
While this may not be the right definition of incapacity for everyone, it will generally provide the most comprehensive cover.
Own Occupation Cover
Own occupation cover means that you will be entitled to your benefits as long as your injury or illness prevents you from working in your own specific job.
For example, if you are a dentist and an injury prevents you from using your hand, you’ll be covered because you cannot work in your occupation with such an injury.
Suited Occupation
Policies that use a suited occupation definition of incapacity mean that in order to claim benefits, you have to be unable to undertake your current job role as well as any other job where you may have experience or education to perform.
So where a dentist with a hand injury may not be able to do their own job, they may not necessarily be able to claim under a ‘suited occupation’ definition because they would still be fit enough to teach dentistry to students.
Any Occupation / Work Tasks
This is a definition of incapacity that means you can only claim if you’re so totally unfit to work that you can’t work in any occupation / perform a set number of tasks required at most basic jobs.
This definition of incapacity is the most difficult to claim on and in general we’d recommend it’s best avoided.
How Much Does Earnings Protection Cost?
The cost of Loss of Earnings Cover depends on a variety of personal and policy factors. It’s hard to give an exact cost for you without knowing more about you as an individual.
For that, you’ll need to speak with one of our expert insurance advisers – which is totally fee free – to get quotes tailored to you.
As well as the above policy factors – e.g. deferred period, sum assured, policy cease age etc. – there are also some personal factors that come into play when costing Earnings Insurance. These include:
- Your Smoker Status
Smokers are more at risk from health problems – and serious health problems – than non-smokers and so most (although not all) insurers charge smokers more to compensate.
- Your State of Health
If you have a health condition, or a family history of certain health conditions, the insurer may charge you more to compensate for the additional risk they’re taking on. Alternatively, they may decline to offer cover for that condition entirely.
- Your Age
The older we are, the more likely we become to suffer a health condition and so the more Loss of Earnings Insurance will cost.
We’ve put together a rough idea of the monthly cost of Loss of Earnings Insurance in the table below. To do so, we’ve had to make a number of assumptions, including:
- The individual is a healthy office worker
- They want a benefit of £1,500 a month
- They’re looking for an 8 week deferral period
- Their cease age will be age 65
- They’re looking for long-term cover that will pay out each month until they reach 65
- They want to guarantee their premiums for the life of the policy.
These premiums were calculated from our income protection quote tool and represent the best policies that match the above metrics from across the entire UK market.
Is Loss of Earnings Insurance Worth It?
This depends on your perspective and your circumstances, but if you would find yourself in significant financial difficulty if you lost your ability to earn it’s a policy that’s worth considering.
How would you meet everyday expenditure if you lost your earnings, such as the rent / mortgage, utilities and other bills, council tax, groceries, car running costs and more?
With few of us having sufficient savings to truly go the distance and cover your lost income for very long, where do you turn thereafter? It’s here Income Protection can be invaluable, stepping in to provide a monthly income to replace your wages if you can’t work due to accident or sickness.
Does Loss of Earnings Insurance Cover Redundancy?
Yes, Loss of Earnings Insurance can cover redundancy if you opt to include Unemployment Insurance with your Income Protection policy.
This can either be with an Accident, Sickness and Unemployment (ASU) policy, which would pay out short-term if you couldn’t work through accident, sickness or unemployment.
Alternatively, you could opt for Income Protection with a separate Unemployment Insurance policy ‘bolted on’, which would provide longer-term protection for accidents and sickness and protection for redundancy for up to 2 years.
Can I Get Loss of Earnings Insurance if I'm Self-Employed?
Yes, you can get Loss of Earnings Insurance if you’re self-employed.
In fact, it can actually make up a very important part of your financial planning should you be out of work through accident or sickness, as it’s highly unlikely you’ll get sick pay as a self employed individual.
Policies for the self employed tend to have shorter deferral periods to make up for the fact that there’s no sick pay and can be tailored in other ways to meet your needs as a sole trader.
What is the Maximum Income Protection Limit?
This depends on the insurer you choose. Each insurer will have a different maximum amount they can cover.
If you are a high earner, friendly societies are unlikely to be the best option for you because these tend to have lower maximum yearly payouts than larger companies such as Aviva or Legal & General.
Compare Best UK Earnings Insurance Providers In 2024
We work with all of the leading UK providers. It is important to compare a range of insurers when doing your research to ensure you find the most cost effective policy for your personal circumstances.
Although not exhaustive, below is a list of the most popular UK providers we work with:
When doing your research our online quote comparison tool will do the hard work for you, while our experts are on hand to help answer any questions you may have. If you need help give us a call on 02084327333 or email help@drewberry.co.uk.
Get Loss of Earnings Insurance Quotes & Expert Advice
Getting Loss of Earnings Insurance in place is a key way to protect you if you can’t work. However, there’s a lot to think about before a policy like this goes live, which is why it’s beneficial to get some advice.
Why Speak to Us?
We started Drewberry™ because we were tired of being treated like a number.
We all deserve a first class service when it comes to issues as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.
Whether you’re unsure about which policy is right for you or need an explanation of which premiums could be the best fit, just pop us a call on 02084327333 or email help@drewberry.co.uk.
