What is Long Term Income Protection? Do I need it? How much does it cost?

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.

Why Long Term Income Protection?

It’s more common to be out of work due to accident or sickness than many people may realise. What’s more, as a nation, we’re underprepared for the challenges we’d face if we were out of work, particularly in the long term.

For instance, 14.7% of the over-55s questioned by Drewberry’s 2018 Protection Survey said that they’d needed to be out of work for at least 6 months due to illness or injury at some point during their career – equivalent to 1 in 6 people.

Meanwhile, the Office for National Statistics labelled more than 2 million people as ‘economically inactive’ due to long-term sickness in the 3 months to January 2019.

Clearly, the risk of illness or injury – and long-term illness or injury – is much higher than many people might think.

So what would happen if you couldn’t work?

In 2017, average household expenditure rose to £554.20 per week. Given that savings for 2 in 5 households equate to no more than £1,000, a sizeable proportion of households couldn’t maintain their normal expenditure for any more than 2 weeks if off work sick.

With ESA starting at £90.50 per week for the over-25s, government benefits make little dent in pressing expenditure needs if you can’t work.

Although other state benefits are available, these tend to be based on the severity of your disability and aren’t always easy to qualify for. In any event, they rarely can make up for total lost income in the event of accident or sickness.

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.

Victoria Slade
Independent Protection Expert at Drewberry

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.

Compare Top UK Long Term Income Protection Providers

	AIG AIG is one of only a handful of Income Protection providers to offer cover for individuals with type 2 diabetes. It is also willing to offer diabetics guaranteed premiums and will not exclude diabetes in its policy, unlike other providers. Maximum coverage: 60% of the first £30,000 of your salary / 55% of salary between £30,000-£100,000 / 45% of any salary £100,000+ Deferred periods: 4 / 8 / 13 / 26 / 52 weeks Maximum entry age: 54
	Aviva Aviva covers all policyholders with an own occupation definition of incapacity and, if you choose to return to work in a different occupation until you are well enough to return to your pre-incapacity occupation, Aviva will top up your reduced income with Back to Work Benefits. Maximum coverage: 55% of your pre-tax salary, up to a maximum of £240,000 per year. Deferred Period: 4 / 8 / 13 / 26 / 52 / 104 weeks (104 weeks is the longest available deferred period for UK Accident & Sickness policies) Maximum entry age: 59
	British Friendly British Friendly gives access to its Mutual Benefits program, which provides rewards such as vouchers for high street shops, discounted fitness tracking devices, emotional support services and online legal services. Maximum coverage: 70% of your pre-tax salary, up to a maximum of £45,000 per year. Deferred periods: Day 1 / 1 / 4 / 8 / 13 / 26 / 52 weeks Maximum entry age: 64 One of the few insurers that will cover pilots on an own occupation basis
	Cirencester Friendly Cirencester Friendly provides you with a range of additional benefits and services, including a hospitalisation benefit and a Friendly Voice service that provides you with a personal nurse that you can contact for advice and emotional support. Maximum coverage: 65% of your pre-tax salary, up to a maximum of £65,000 per year. Deferred periods: Day 1 or 4 / 8/ 13 / 26 / 52 weeks Maximum entry age: 54
	The Exeter The Exeter is one of the few UK insurers that is able to offer own occupation cover to workers in higher risk occupations, although such policies only offer age banded premiums. Maximum coverage: 60% of your gross salary up to the first £100,000 and 40% of any additional income. Deferred periods: Day 1 / 1 week / 4 weeks / 8 weeks / 13 weeks / 26 weeks / 52 weeks Maximum entry age: 59
	Legal & General Legal & General comes with a free life cover element that pays out a maximum of 12 times your monthly benefit if you pass away while the policy is in force. Maximum coverage: 60% of your annual income before tax, up to a maximum of £200,000 per year. Deferred periods: 4 /13 / 26 / 52 weeks Maximum entry age: 60
	Liverpool Victoria Liverpool Victoria offers free access to unique LV Doctor Services, which include fast access to remote GP services, second opinion services and private prescriptions for policyholders and their children up to the age of 16. Maximum coverage: 60% of your annual income before tax, up to a maximum benefit of £12,500 per month Deferred periods: 1 month / 2 months / 3 months / 6 months / 12 months Maximum entry age: 59
	Royal London Royal London can include Fracture Cover, which pays out a lump sum of between £1,500 and £4,000 on top of any benefit you’d receive for being off work if you receive a fracture of a specified body part Maximum coverage: 65% of the first £60,000 income then 50% up to £250,000 (which is the maximum sum per year) Deferred periods: 4 / 8 / 13 / 26 / 52 weeks Maximum entry age: 59
	Shepherds Friendly Shepherds Friendly allows you to apply to suspend cover and premium payments under your plan for a minimum continuous period of 3 months and up to a maximum continuous period of 24 months. This is known as ‘Career Break’ option. Maximum coverage: 70% of income up to £49,000 per year Deferred periods: Day 1 / 1 week/ 4 weeks / 8 weeks / 13 weeks / 26 weeks / 52 weeks Maximum entry age: 60
	Vitality Vitality provides a unique offering. While the core of its policy is similar to other providers’ offering, it also offers a unique set of additional benefits to those who participate in the Wellness / Optimiser programs that can include policy discounts and rewards. Maximum coverage: 60% of your earnings capped up to £2,500 per month and 50% of any earnings above, up to a maximum of £16,666 per month Deferred periods: 1 week / 1 / 3 / 6 / 12 months Maximum entry age: 59

Get Long Term Income Protection Quotes & Expert 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 an expert such as one of the team at Drewberry can be invaluable.

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 3900 and growing independent client reviews rating us at 4.92 / 5.
• Gain the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.

Long Term Income Protection comes with a number of potential pitfalls you really want to avoid.

If you need any help making sure you set-up the most suitable cover please do not hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

Tom Conner
Director at Drewberry