Life has an unpredictable nature and you never know when you might require some extended time off work. Whether this is because of an injury you’ve sustained or an illness, absence could cause a loss of income.
As an adult with bills and responsibilities, facing financial hardship is often a significant concern. This is why many people turn to Income Protection policies to help protect their income should the worst happen.
Here’s what you need to know if you’re considering getting your own policy.
Short on time to dive into our guide but still want expert insights on Income Protection? Our very own Ben Brooks gives us the rundown, and what to consider before buying a policy. Just hit play! 👇
Income Protection Insurance is designed to cover a proportion of your monthly salary should you suffer an accident or illness that prevents you from working.
These policies:
EXPERT TIP! 🤓
According to consumer group Which?, Income Protection is the one insurance product that every UK working adult should consider.
Income Protection Insurance is important for a variety of reasons. Many people don’t receive comprehensive financial protection from their employer in the event they take sickness leave. And benefits provided by the government are likely to only make a small dent in your outgoings if you can’t work for any medical reason.
As we’ve mentioned, life is unpredictable and you can become unwell or suffer an accident at any time. This can be challenging from a financial standpoint. What would happen if the breadwinner in your household couldn’t earn a living?
Income Protection Insurance provides a financial safety blanket, ensuring that you can continue to cover your bills and living expenses without having to worry.
A policy helps to provide you with peace of mind and reassurance. You can focus on getting better and returning to work without any money woes.
Rauri Taylor
Independent Protection Expert
If you fall ill or suffer an accident that leaves you unable to work, Income Protection pays out a monthly benefit to cover part of your income. A policy typically covers most illnesses and injuries, including musculoskeletal issues, cancer, mental health disorders, and more.
When setting up a policy, you’ll choose:
You will pay a premium for cover, either monthly or annually. If you need time off due to an accident or sickness, you can make a claim. This is only if your policy covers the medical issue.
In the event of a successful claim, you’ll have to wait out the deferred period. Once this has passed, your monthly benefit begins. You receive this as tax-free payments. These payments continue until one of the following occurs:
EXPERT TIP 🤓
If you think you may need to make a claim, let your insurer know as soon as you think you’ll require time off work. This helps ensure you get your benefit sum when you need it.
Your Income Protection policy is designed to pay out if you’re unable to work because of:
These policies typically have few exclusions, making it the most comprehensive form of incapacity insurance on the market.
When setting up a policy, make sure it covers you in your own occupation. Here, you’re eligible to make a claim as long as you’re incapable of carrying out your specific job duties.
To make your policy more comprehensive, adding Unemployment Insurance to the plan can help to further protect your income. This can pay out if you’re made redundant, for example.
Some clients prefer to buy Income Protection and Unemployment Insurance separately. When combined, it’s typically a short-term policy.
We recommend buying Long-Term Income Protection as a standalone product. Having this type of protection provides extra coverage, normally up until your retirement age.
If you have a pre-existing condition, it’s best to speak with one of our expert advisers. We have direct access to the insurer’s underwriters, placing us in a great position to negotiate the best terms for your policy.
If you need help, pop us a call on 02084327333 or email help@drewberry.co.uk.
Samantha Haffenden-Angear
Independent Protection Expert
Most personal protection policies come with a variety of extra benefits alongside the core cover. Such extras are there to further support your health and wellbeing.
Your policy may include:
You can utilise these benefits outside of a claim, meaning you can benefit from the policy as soon as it’s active. Many of these can be used by your immediate family (spouse / dependent children) too.
Income Protection policies have limitations and restrictions. These apply to all policyholders regardless of factors such as age, health history and smoker status.
Policies typically exclude claims resulting from:
Insurers often require you to share your medical notes when applying for a policy. If you’ve had a health condition in the past five years, the insurer may exclude the medical issue from your policy.
Depending on the condition and severity disclosed, the insurer will either:
If you have a pre-existing condition, it’s best to speak with an independent financial adviser (like our experts at Drewberry). We have direct access to the insurer’s underwriters, placing us in a great position to negotiate the best terms for your policy.
If you need help, please don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.
Whether you need Income Protection Insurance is personal to you and depends on many factors. You might consider it if your company sick pay isn’t sufficient or you don’t have any savings to fall back on, for example.
When considering this insurance policy, it’s important to think about what would happen if you couldn’t work for a length of time. How would you cope financially?
Your chances of falling ill or suffering an accident are much higher than most anticipate.
These statistics show just how many people living in the UK experience some form of health condition or illness in their lifetime.
If you were out of work for a long period, how would your finances fair? This is something to think about when considering Income Protection Insurance.
These statistics paint a clear picture of savings in the UK:
Considering the average household spends £2,700 a month on household bills, a loss of income is likely to cause financial hardship. A comprehensive policy provides a vital financial safety net should you be unable to work.
Many turn to government support during times of financial instability. However, Employment and Support Allowance offers £90.50 a week if you’re over 25. This sum is unlikely to cover your essential outgoings.
While there are other state benefits available, such as Statutory Sick Pay (which provides £116.75 a week), these depend on your circumstances and your health condition. When you consider how much an average household spends on bills, such benefits are not enough.
If you’re thinking about protecting your income, it’s best to do it sooner rather than later. Here are some circumstances when you should consider a policy.
A lot of people wait until they realise their health is at risk before getting insurance. But at this point, you’re likely to face high Income Protection payments. You may also find your health condition is excluded from your coverage.
To avoid such pitfalls, the best time to take out a policy is as early as possible. The healthier you are when you apply, the more comprehensive and affordable your policy may be. If you choose guaranteed premiums, you’ll then benefit from paying the same low price throughout the policy’s lifetime.
There are times where we take on more responsibility and realise the importance of protecting your income. This includes:
Your home is often the most valuable asset you have, with many people committing their working lives to a mortgage. To ensure you can continue paying your mortgage if you can’t work, a policy can help cover these payments.
Getting a new job is a great time to take out personal insurance – especially if your employer doesn’t offer any financial benefits, or only provides statutory sick pay.
If you’re self-employed, you probably don’t receive the same benefits a regular employee would receive. Self-Employed Income Protection is essential here.
An extra dependent joining the family means an increase in living expenses, which is another reason to ensure your income is protected.
Standard Income Protection is suitable for most people. However, if you’re a company director or you’re self-employed, specialist cover is necessary. It’s likely you don’t have the safety net of an employer.
If you’re self-employed, it’s essential your level of cover aligns with what you declare to HMRC. This helps make sure you don’t over insure yourself and pay for cover you can’t claim on.
EXPERT TIP 🤓
Directors often pay themselves a small salary and take the rest in dividends. In this case, it’s important to speak with an expert financial adviser to ensure you get an Income Protection policy that protects your dividends.
Some professions, such as NHS staff, operate on a tiered sick pay system. The length of time you’re employed determines the amount of sick pay you’re entitled to. For example, during your third year of service, your entitlement is four months’ full pay and four months’ half pay. This might not be enough to cover essential outgoings.
There are a range of specialist policies, including policies for doctors, dentists, and even pilots.
If you run your own business and have employees working for you, Group Income Protection is a great benefit to offer. This can align with your sick pay policies and provide essential financial protection.
As well as Income Protection, some people also consider Critical Illness Cover. But which one is best? The policies sound similar, although they work differently.
Income Protection pays out a regular monthly income if you’re unable to work for any medical reason. The Best Income Protection will pay out until your retirement age in the event you can’t work again.
Whereas, Critical Illness Insurance provides a single tax-free lump sum if you’re out of work because of a critical condition listed on the policy. Claims are commonly made for cancer, heart attack, and stroke.
At Drewberry, we recommend you buy Income Protection. This is because it can be difficult to determine how long you could be out of work with a certain illness. And as the payment through Critical Illness Insurance is a single lump-sum, it doesn’t provide ongoing payments to help you cover your household bills.
We’ve created a guide to help you understand the differences between Income Protection and Critical Illness Cover.
If you’d like to talk through your options with an adviser, get in touch. We’ll be happy to help. Call us on 02084327333 or email help@drewberry.co.uk.
Darren Jaynes
Independent Protection Expert
Payment Protection Insurance (PPI) and Income Protection are separate protection products designed for different purposes. PPI allows you to keep up with loan repayments if you’re unable to work due to accident or sickness, and potentially, unemployment. Mortgage PPI does the same for a mortgage.
As these policies are typically tied to a loan repayment structure, you can only cover that amount. While your mortgage or loan will be covered, many other living expenses are not.
This is why we recommend Income Protection over PPI, as you insure a portion of your salary against the risk of accident or sickness. We also tend to steer away from PPI because it often comes with more exclusions. For example, no coverage for back pain or mental health conditions. It can also be difficult to make a successful claim.
There are many factors to think about when taking out Income Protection. Some are policy-centric, while others are more personal.
All the following factors can affect the cost of Income Protection:
You’ll also need to think about:
There are three premium types to choose from when getting Income Protection Insurance.
It’s important to get a policy which covers you in your own occupation. While there are other definitions of incapacity (suited occupation and any occupation), this type of cover enables you to claim as long as your health prevents you from doing your specific job.
Own occupation is the easiest definition to claim on. Insurers typically use these definitions to determine how capable you are of working and your likelihood of a successful claim.
We always suggest own occupation cover to our clients, as it ensures you can get financial support when you need it most.
The moment you’re unable to carry out the duties of your job role, you’re eligible to claim with own occupation cover. Other definitions make it harder for claimants to be successful.
Samantha Haffenden-Angear
Independent Protection Adviser
Insurers paying out claims is the most important aspect of the protection industry. In recent years, developments have made making a claim easier and faster.
Here’s how making a claim works:
Should you need to make a claim, our expert advisers are here to help. We’ll ensure your claims form is completed and your claim is dealt with smoothly and quickly.
Neil is a client of Drewberry who took out an Income Protection policy with British Friendly. He’d had his policy for just 4 years before becoming ill.
After experiencing stomach pains, Neil went to his GP, who referred him for further tests. These tests discovered that he unfortunately had bowel cancer, and it was already at stage 2.
Neil needed surgery to remove the cancer, but developed postoperative sepsis and had to spend several weeks in hospital recovering, completely unable to work.
British Friendly began paying him a proportion of his earnings after his deferral period, allowing him to keep up with all the important bills, such as his mortgage, while he was unwell. 🤕 Read More About Neil’s Claim.
The vast majority of Income Protection providers now publish their claims statistics, which is a real step forward in building trust.
Each year, the Association of British Insurers (ABI) publishes average payout rate statistics from all insurers. Below, you’ll find the most recent payout rates from all the UK Income Protection insurers.
IMPORTANT ❗️
Claims payout statistics shouldn’t be used to make an exact comparison of insurers, but rather to get a general understanding of payout rates across insurers as a whole.
Insurer | 2021 | 2022 | 2023 |
|---|---|---|---|
Zurich | 99% | 85% | TBC |
Vitality | N/A | 96.5% | 95.4% |
Shepherds Friendly | 95% | 96.2% | TBC |
Cirencester Friendly | 93.6% | 95.4% | 95.8% |
Holloway Friendly | 94% | 93.4% | 86% |
British Friendly | 84% | 90% | 89% |
Liverpool Victoria | 93% | 92% | 92% |
The Exeter | 93% | 92% | 96% |
Aviva | 85.4% | 94.3% | 92.5% |
Legal & General | 81% | 82.2% | 80% |
The cost of Income Protection depends on a number of personal and policy-centric factors. To give you a rough idea of premium costs, we’ve pulled together some quotes below. These are based on:
Each Income Protection provider charges different premiums, even if your cover seems pretty much the same. This is because each provider has its own appetite for risk and charges based on this.
Provider | |
|---|---|
| 
|
£30.73 | £34.50 |
The longer your deferred period, the cheaper your premiums. Based on the above policy options, here are example monthly costs from British Friendly for different deferred periods.
| 4 weeks | 8 weeks | 13 weeks |
|---|---|---|
| £42.76 | £37.02 | £31.18 |
Quotes correct as of November 2024
The duration of the policy payment period impacts the cost. A short-term plan is cheaper than a long-term one. However, it’s important to remember short-term policies don’t provide the same comprehensive coverage as long-term policies. Here are example costs from The Exeter for different cover terms:
| 2 years | To policy cease age (65) |
|---|---|
| £17.63 | £30.73 |
Quotes correct as of November 2024
As you get older, you’re more likely to suffer an injury or become unwell. As a result, older applicants face higher premiums. The earlier you take out a policy, the lower the cost. Here are example costs from Vitality for different ages:
| Age 35 | Age 40 | Age 45 |
|---|---|---|
| £45.49 per month | £59.39 per month | £71.35 per month |
Quotes correct as of November 2024
If you smoke, your health is more at risk than a non-smoker. Most insurers, although not all of them, charge smokers higher premiums. Here are example monthly costs from LV=:
| 🚭 Non-smoker | 🚬 Smoker |
|---|---|
| £55.09 | £75.46 |
Quotes correct as of November 2024
EXPERT TIP 🤓
If you use vapes or nicotine patches, you’re still classed as a smoker by most insurers. If you consume any nicotine products, it’s best to speak to an expert adviser before buying an Income Protection policy. We’ll find providers that offer the most competitive premiums for your smoker status.
Depending on your health status and the insurer you choose, you may pay more for cover if you have a pre-existing medical condition or an adverse health history.
What you do for work has an impact. Some jobs are riskier than others, and insurers increase costs to reflect the additional risk. Manual workers, for example, are more likely to have an accident on the job than someone with an office job.
No, traditional Income Protection doesn’t cover redundancy or unemployment. To cover these situations, you require Accident, Sickness and Unemployment (ASU) or Income Protection with separate Unemployment Insurance cover bolted on.
We tend to recommend the latter, as ASU policies only pay out short-term if you can’t work due to accident or sickness.
Taking out Income Protection is a personal decision. It’s important to consider what would happen to your family finances if you couldn’t work and earn a living. While we don’t like to think about worst-case scenarios, you never know when an accident or illness may occur.
Income Protection is a worthwhile policy. It provides you and your immediate family with peace of mind and reassurance that should the worst happen, your essential outgoings are covered.
This depends on the length of your deferred period. You choose this when you set up your policy. You can claim as soon as your policy is active, however, you won’t receive any benefit payments until the deferred period has passed.
Insurers commonly offer deferred periods of 4, 8, 13, 26, and 52 weeks. You can have a 1 day deferred period. So, if you choose an 8-week period, you will have to wait 8 weeks to start receiving any payment from your policy after a claim.
When taking out Income Protection for yourself, there isn’t any extra tax to worry about. You pay premiums from your personal bank account, in which your income has already been taxed. So, the payout is tax free.
Tax implications differ for Directors Income Protection. Here, premiums are paid via the business and are classed as a business expense against corporation tax. As no tax is paid on the premiums, you will pay tax on the payout.
Yes, you can. You could be off work for a year due to a musculoskeletal issue, such as back pain, and return to work after you’ve recovered. Then, in a few years’ time, you might develop a new condition and need more time off. You’d be able to make a second claim on your policy.
With long-term cover, you can claim multiple times for the same condition/illness (recurring illnesses).
With so many factors and options to consider when buying Income Protection, we know it can quickly become overwhelming. At Drewberry, our team of experts are here to help ensure you buy the right policy for your needs. We’ll search the UK market on your behalf to find the most competitive deal.
If you’d like some help with this, get in touch by calling 02084327333 or email help@drewberry.co.uk.
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