Keeping on top of our essential outgoings, such as rent or mortgage, can be a challenge.
And when something like an injury or an illness prevents you from working for a longer period, things can only get worse.
This is where income protection insurance comes into play.
If you’re wondering “Do I need income protection insurance?”, the answer is: probably yes.
Here’s everything you need to know.
Income protection insurance in the UK, also known as permanent health insurance, is a long-term insurance policy that provides you with a regular income if you cannot work due to sickness or disability.
This type of policy covers most illnesses that leave you unable to work and will pay you a portion of your income until you can return to work, retire, die, or reach the end of the policy term – whichever comes sooner.
Most salary protection insurance policies pay out between 50% and 65% of your income and can be claimed as many times as needed while the policy is active.
The payments from the insurance for income protection won’t start immediately when you fall ill. You’ll have to wait for the so-called “deferred” period to pass, which can last 4, 13, 26 weeks, and a year.
This is because most employers have to cover your sick pay and you might be eligible for statutory sick pay.
Note: The UK income protection insurance payments are not taxable. If you’re looking to take full advantage of the tax perks, here’s how to pay less taxes legally.
Given that around 15 million Brits live with at least one chronic disease, getting income insurance in the UK is worth considering, regardless of your situation.
Most people in the UK are eligible for up to 28 weeks’ statutory sick pay –which is funded by the government – if they can’t work because of an illness or injury, but it’s only £96.35 a week.
If you don’t have an alternative income source or have little money saved – an average Brit has around £9,600 in savings –income insurance can significantly help.
Having income protection insurance is also a good idea if you:
In addition to income insurance, getting key man insurance is also essential.
Although getting income protection insurance is rarely a bad investment, you might not need it if you:
The average cost of an income protection insurance policy is between £8 and £75 per month.
The range is wide because the cost of your income protection insurance depends on a long list of doctors, including the insurer, the amount of your income, the income percentage you want to cover, and your circumstances.
The table below explains what affects your income protection insurance policy and how.
|Criteria||Effect on the insurance policy cost|
|Age||The older you are, the higher the cost|
|Health||Being in good health means you will pay less|
|Occupation||You will pay more if you have a risky job|
|Hobbies||You will pay more if you are an adventurous type with dangerous hobbies|
|Habits||Smoking or drinking will raise your policy cost|
|Waiting period||The longer the waiting period, the lower your premiums|
|Willingness to change jobs||You will pay less when taking out income protection insurance if you accept to get another job if your illness stops you from doing your basic job|
|Benefit amount||Better benefits mean higher premiums|
|Benefit payment period||Long-term income protection insurance policies are pricier than insurances with capped benefit terms|
On top of that, your wage protection insurance cost can go lower or higher based on the type of premium you choose.
For instance, a standard premium gives the insurers the right to increase it in the future and is usually cheaper. Insurance policies with guaranteed premiums have fixed amounts and are more expensive.
Before you commit to an income protection insurance policy:
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Life insurance pays benefits to your beneficiaries after you pass away. Income protection insurance, on the other hand, will pay you if you’re unable to work due to an injury or illness after your sick pay ends (provided you have any).
Income insurance will provide you with regular payments if you are unable to work due to an illness or disability. The payments are between 50%-70% of your earnings and it typically takes four weeks for them to start coming into your bank account
Income protection insurance protects against long-term injury and sickness.
If you have another type of illness insurance that can cover your expenses in case you fall ill, then you don’t have to get income protection insurance.
My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.