Long Term Income Protection

Long Term vs Short Term Sickness Insurance

As mentioned, Long Term Sickness Insurance which is also known as Permanent Health Insurance will pay out for anything that medically prevents you from working, in a situation where you could never work again it would pay out your monthly benefit right up until your retirement date if necessary .

This is opposed to Short Term Income Protection, which will only pay out for a maximum of 1, 2 or 5 years per claim.

While a claim lasting 1, 2 or 5 years may sound like a long time, the reality is that it can still leave you exposed should you become so ill you can never work again. How would you cope in such a situation?

It is important to bear in mind that Liverpool Victoria’s average length of claim is 7 years and 7 months which is considerably longer than any short term budget Income Protection would pay out for.

What Does Income Protection Cover?

Income Protection covers you for any accident, bodily injury, illness or period of sickness that prevents you from working for longer than your deferral period.

The most comprehensive Income Protection covers you in your own occupation; this means you’ll be able to make a claim if something stops you from doing your specific job role.

Where a budget short term Income Protection policy will only pay a claim for 1-2 years, a traditional long term policy will continue paying a claim until you either recover and return to work or until retirement if you can never work again.

What Doesn’t Income Protection Cover?

There are very few standard exclusions on Income Protection although commonly you may find the following being excluded:

• Self-inflicted injuries
• Illnesses / injuries sustained during the pursuit of criminal activities
• Illnesses / injuries resulting from drug or alcohol misuse / abuse

In certain cases, you may find that travel to countries or regions will be excluded if there is active internal conflict, political instability, an ongoing epidemic or it’s a country that the Foreign Office has advised against travel to.

Dealing With Pre-existing Medical Conditions

If you have any pre-existing medical conditions it can be a little more complicated. If you’ve suffered from a health condition in the past 5 years you will need to declare this in your application when taking out cover.

The insurer will review this medical information in more detail. Depending on how they view your current state of health they are likely to do one of three things:

• Cover the condition on standard terms
• Cover the condition for an increased premium
• Exclude the condition

However, with certain insurers there may be an opportunity to serve a period on the policy where you don’t receive any advice, medication or treatment for that condition and then potentially gain coverage for it. This will be entirely at the insurer’s discretion.

Where we have access to all the top UK insurers we can make sure you get the most competitive terms given your past medical history. If you have existing health conditions please do not hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

How Does Long Term Income Protection Work?

Long Term Income Protection pays out monthly benefits to replace a proportion of your gross salary if an injury or illness prevents you from working. It will continue paying out until retirement if you can never work again.

There are three main policy factors to take into consideration when looking to buy Income Protection. These will impact the cost of cover significantly, so it’s worth understanding how these elements work.

• Sum assured
  The biggest factor in determining the cost of premiums will be how much you need the insurance to pay out each month. This is known as the sum assured and will be represented as a proportion (between 50% and 65%) of your monthly gross (pre-tax) income.
• Your deferral period
  This refers to how long you need to be out of work for before you can make a claim. The longer your deferral period, the lower the cost of cover, so consider whether you get any sick pay or if you could rely on savings for a period of time and set your deferral period to match up with this.
• Policy cease age
  The length of time your policy will last for and how long the cover will pay out in the event you can’t work due to health reasons. This is typically set to match your retirement age.

Your Premium Options

There are three premium options to choose from when you set up Income Protection:

• Reviewable premiums
  These premiums offer little continuity year-on-year because the insurer can increase them as they see fit, whether this be as a result of poor underlying economic factors or a spike in claims in any given year.
• Age banded premiums
  These also increase with time but, unlike reviewable premiums, they can only increase by a set figure each year and only in line with your age to reflect the increased risk of you claiming as you get older.
• Guaranteed premiums
  Guaranteed for the life of the policy and cannot change with time.

Your Definition of Incapacity

Your definition of incapacity is important because it refers to how ill or injured you need to be before you can make a claim.

There are three definitions of incapacity to consider when setting up Income Protection:

Own Occupation

Arguably the most comprehensive definition of incapacity, this allows you to make a claim if your illness or injury prevents you from working in your specific job role.

Suited Occupation

Policies that use this definition of incapacity mean that in order to claim benefits, you have to be unable to undertake your current job role or any other job where you may have experience or education to perform.

Any Occupation / Work Tasks

This definition of incapacity 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, such as signing your name or typing.

Making a Claim on Long Term Income Protection

• Step 1
  You encounter an accident, sickness or disability that prevents you from working and take leave from work.
• Step 2
  Submit a claim as soon as it becomes apparent that you’re going to be off work for longer than your deferral period, enclosing a completed claims form, evidence of your condition, and potentially a payslip confirming your salary prior to the development of your health problem if necessary.
• Step 3
  After making your claim, you will be required to wait out the deferred period you chose when setting up cover. You will not be able to receive your payments until your deferred period has ended.
• Step 4
  If at the end of your deferred period you are still unable to work, your insurance provider will begin paying out monthly benefits valued at the agreed percentage of your pre-tax salary.
• Step 5
  With Long Term Sickness Insurance, you can continue claiming this benefit for as long as you need to, providing you meet your policy’s definition of incapacity.

You can claim as many times as you need to for as long as you need to on your policy while it’s still active.

This means if you’re unfortunate enough to suffer multiple illnesses or injuries throughout your working life that each stop you from doing your job, you’ll be able to claim repeatedly.

Samantha Haffenden-Angear
Independent Protection Specialist

Neil’s Cancer Claim With British Friendly

Neil is a client of Drewberry and took out an Income Protection policy with British Friendly. He was a member for 4 years before he needed to claim.

He became unwell and had pains in his stomach. After consulting his GP and having some further tests Neil was diagnosed with stage 2 Bowel Cancer and needed to make a claim.

🤕 Read More About Neil’s Claim

How Much Does Long Term Income Protection Cost?

As well as the three policy factors listed above, there are three personal factors that will also impact the cost of Long Term Income Protection:

• Your age
  The older you are at the start of the policy, the higher the cost of Income Protection
• Any health conditions you may have
  An insurer may look to increase the premiums if you have a health condition or simply exclude it outright
• Your smoker status
  Smokers are more likely to get ill, and to become seriously ill, due to the detrimental health impacts of smoking.

Average Cost of Long Term Income Protection

In the below table, we’ve laid out the average monthly cost of a traditional long term income protection policy.

To work out the cost of cover, we’ve assumed:

• The individual is a healthy employed office worker
• They’re a non-smoker
• They want a benefit of £2,000 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 until retirement if they can never work again.

Using our Income Protection Insurance quote tool we have compared all the top UK insurers and summarised the cheapest policy that matches the above criteria.

Get Long Term Income Protection Quotes and Specialist Advice

With so much to consider when it comes to setting up Income Protection, it’s important that you don’t miss anything out. That’s where the advice of a specialist such as one of the team at Drewberry can be invaluable.

Long Term Income Protection comes with a number of potential pitfalls you really want to avoid. If you need help finding the most suitable cover, call 02084327333 or email help@drewberry.co.uk for fee-free advice.

Why Speak to Us?

When it comes to protecting yourself and your finances, you deserve first-class service. Here’s why you should talk to us:

• There’s no fee for our service
• We’re an award-winning independent insurance broker, working with the leading UK insurers
• You’ll speak to a dedicated specialist from start to finish
• 4112 and growing independent client reviews rating us at 4.92 / 5
• Claims support when you need it most
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