How Does Income Protection Work?

By Vicki Coleman

Very few of us have a fall-back option in place in case we are forced out of work for a period of time due to illness or injury. Do we need to be doing more to protect our income and financial security?

If we’re being honest, the answer is probably yes.

In a survey published in November 2022, it was revealed that a quarter of UK adults have less than £100 set aside in savings[1]. Despite this, less than one in 10 adults in the UK currently have either critical illness or income protection insurance[2].

Income protection can provide a safety net to both those without significant savings and those who wish to protect their savings for retirement or a rainy day.

You don’t have to be Rachel Riley to work out how quickly your funds would disappear if you were to lose some or all of your income. Most households would be in all kinds of trouble if they were to be out of work even for a month.

When do you need to consider income protection?

You might have assumed that your employer would continue to provide you with some level of income if you were struck down with a nasty injury or illness.

Many organisations, like the NHS and councils, would give you your full pay when you’re sick, and have what’s known as an occupational sick pay scheme.

However, if you work for a private company or have been outsourced, you may only be entitled to Statutory Sick Pay (SSP) – the minimum amount the government says employers can pay.

If you earn over £120 per week and are off sick, that amounts to £96.35 per week[3]. This can be paid for up to 28 weeks of sick leave. After this time, you may be entitled to Employment and Support Allowance (ESA) if your employer stops paying SSP.

If you’re self-employed, you’re not entitled to sick pay.

You might be reading this thinking you’ve barely taken a day off sick in years. But even those people made of the strongest stuff can find themselves succumbing to a serious health condition.

How does income protection help?

In many ways, it does what it says on the tin: protecting your income to the tune of 50-70% of your pay.

That might mean you still have to make some cutbacks until you’re recovered and back up to your usual income, but it will hopefully be enough to cover essential household bills, such as mortgage/rent and utilities.

Here’s all you need to need to know about income protection:

·       It provides regular payments that replace part of your income if you’re unable to work due to illness or an accident

·       It pays out until you can start working again – or until you retire, die or reach the end of the policy term – whichever is sooner

·       It covers most illnesses that leave you unable to work – either in the short or long term (depending on the type of policy and its definition of incapacity)

·       It can be claimed as many times as you need to while the policy lasts

There’s often a pre-agreed waiting (‘deferred’) period before the payments start. The most common waiting periods are 4,13, 26 weeks and a year. So, make sure you know what you’re getting when comparing quotes – our experts will guide you accordingly.

It’s not the same as critical illness insurance, which pays out a one-off lump sum if you have a specific serious illness.

How much does income protection insurance cost?

Ultimately, this is what it all comes down to for many. While some added protection wouldn’t go amiss, you’re not going to want to pay through the nose for it, especially if the likelihood of you falling seriously ill or injured is fairly slim.

Well, the good news is that if the insurance provider agrees that the probability of you needing to claim on your policy is low, your premiums will reflect this.

Income protection policies cover a wide range of illnesses, conditions and situations. So, it’s important to compare what different insurers can offer you, weighing up the cover against the cost.

The cost is affected by:

●      your age

●      your occupation

●      whether you smoke or have smoked

●      the percentage of income you’d like to cover

●      the waiting (or 'deferred') period until the policy pays out

●      the range of illnesses and injuries covered

●      health – your current health, weight and family medical history.

The cost will also depend on whether you pay:

●      a standard premium, which the insurer can increase over time, or

●      a guaranteed premium, which remains fixed for as long as you have the policy.

Guaranteed premiums can cost slightly more in the short-term, but many people like the security of knowing what they’ll be paying in future.

Is income protection a worthwhile investment for you?

Only you can really answer this. If you lose sleep at night worrying about your financial situation and what the unknown of tomorrow might bring, income protection could provide some peace of mind.

However, if you have an employee benefits package that gives you an income for 12 months or more, or you’re comfortable surviving on government benefits, your money might be better spent elsewhere.

To help you make your mind up, generate some quotes. It couldn’t be simpler – just provide us with a few details and we’ll do the rest.

If you don’t wish to proceed with any of the quotes, no problem – you can rest assured your information will be stored securely and won’t be shared without permission. In other words, you won’t be bugged by insurance providers if you decide income protection insurance isn’t for you!

So, what do you have to lose? Compare income protection insurance quotes via QuoteSearch today.

[1] https://www.bbc.co.uk/news/business-63517823

[2] https://www.covermagazine.co.uk/news/4057053/uk-adults-critical-illness-income-protection

[3] https://www.gov.uk/statutory-sick-pay