What Is Income Protection Insurance?
Income Protection Insurance is a long-term personal insurance policy that pays a proportion (typically up to 65%) of your income if you cannot work because of illness or injury. The policy is designed to support you financially while you recover. It helps cover essential outgoings such as your mortgage or rent, household bills and general living costs.
This type of cover does not replace your full income and is not designed to cover redundancy.
How Income Protection Insurance Works
When setting up a policy, several key choices are made:
• Level of benefit – typically up to around 50–65% of your gross income.
• Deferred (waiting) period – the length of time you must be unable to work before benefits start. Common options include 4, 8, 13, 26 or 52 weeks. The deferred period is often chosen to align with any employer or company sick pay, but this is not mandatory.
• Benefit payment period – benefits are usually paid until you return to work, retire, or reach the policy’s end date.
Premiums are paid monthly and are based on factors such as age, occupation, health, lifestyle and the options selected.
When Will the Policy Pay Out?
If you are unable to work due to illness or injury, and this is supported by medical evidence, benefits will be paid once the agreed deferred period has passed. Payments are typically made monthly and are free from income tax for personal policies.
Benefit payments normally continue until one of the following occurs:
• You are able to return to work
• The policy reaches its end date
• You reach the maximum age specified in the policy
• You pass away
The Advantages of Income Protection Insurance
There are many advantages to having an income protection policy. The following are key:
• Provides ongoing financial support if illness or injury prevents you from working
• Offers long-term protection rather than a one-off lump sum
• Flexible options allow cover to be tailored to your circumstances
• Protects your lifestyle, home and financial commitments
• Offers peace of mind, should you become unwell or are unable to work
Added-Value Benefits at No Extra Cost
Many insurers include additional services at no extra cost as part of an income protection policy. These may include:
• Access to virtual GP services
• Mental health and wellbeing support
• Physiotherapy or rehabilitation services
• Support to help you return to work when appropriate
• Child critical illness cover
Availability of these services varies by provider and policy terms apply.
Optional Additional Benefits
Depending on the provider, income protection policies may offer optional benefits at an additional cost, such as:
• Some providers may offer separate short-term policies for unemployment or redundancy, but this is not typically included within standard income protection.
• Index linking which hedges against inflation (always strongly recommended)
• Own-occupation cover, which pays out if you cannot perform your occupation, or in some cases specific job cover is available
• Index linking which will help against inflation (always strongly recommended)
These options should be carefully considered to ensure they are appropriate for your needs.
Important Information
Income Protection Insurance is subject to underwriting and policy terms, conditions and exclusions will apply. The level of benefit, cost and suitability will vary depending on individual circumstances.
Advice should always be based on a full assessment of your personal situation. Tapper Financial Services offers advice and guidance to help you understand your options and arrange suitable protection.
Our Powerful Example of Income Protection
Tapper Financial Services had a client who was signed off due to a long-term medical condition. She was therefore not working and had no income. However, she was being paid monthly benefit from an income protection policy she had set up some years before. Based on the income from this policy, Tapper Financial Services was able to arrange a new mortgage for her in order to purchase a new home. In addition, the policy was inflation proofed (index linked) and a few years later, we arranged a further advance for her to build an extension!
The information contained in the above document was correct at the time of publication but is subject to change.