What does income protection cover?

Most of us are aware of life insurance even as kids - but only as something rich ladies in stories kill their husbands for. When you start the whole ordeal of becoming an actually responsible adult human you (hopefully) realise that’s not all it is, and that there’s more to protecting the life you love than just life insurance.  

Whilst life insurance is the perfect starting point for a lot of people, there are different kinds of policies designed to cover you in different ways. Whether you’re looking for cover to protect you from Critical Illness, or a payout for your family after you die, there’s a policy for you.  

If one of your worries is falling ill and being unable to bring home the bacon, you’re not alone. 2.6 million people now find themselves unable to work due to long term sickness, so it’s a very real worry for many [1]. Income protection insurance could be the right choice for you, either by itself or alongside other types of protection.  

What is income protection cover? 

Income protection does what it says on the tin. If you find yourself too ill or physically injured to work, you’ll be paid a percentage of your wage, typically between 50 and 70%, which is usually tax free. Payments are made monthly, like your wage would be, which for many is preferable to the lump sum pay out (like the pay out from a critical illness policy, for instance) as it’s easier to budget for and harder to mismanage.  

You can also set what’s called a deferral period for your income protection, which is the period of time between you claiming your pay out and starting to receive the money. A longer deferral period results in cheaper premiums, so it’s worth figuring out how long you could maintain your lifestyle or meet your financial commitments without a paycheque. If you’ve got a substantial amount in savings, family to support you or you’re eligible for Statutory Sick Pay (SSP) or a good amount of employer sick pay, you might be okay for a longer period of time and could therefore set a longer deferral period.  

Income protection payments continue for as long as you’re signed off sick by your doctor, even if it takes years for you to recover. You’ll receive monthly payouts until you retire or go back to work.  

What can I expect to be covered by my policy?  

You can choose a policy to cover your circumstances. It’s important to weigh up whether you want a larger monthly pay out or a pay out big enough to just cover the essentials, or if you want a plan that only covers a few months of sickness rather than covering you indefinitely. There will be a plan for you.  
Some policies allow you to claim more than once. For instance, if you had cancer and took time off from work and claimed on your policy, you could claim again if your cancer returned later in life - if that is covered by the limits of your policy. 

There’s also a misconception that you can’t buy income protection as someone who is self-employed, which couldn’t be further from the truth. Self employed people are possibly among those who need income protection the most, as they definitely won’t have SSP to fall back on.  

You can expect most income protection policies to cover many illnesses and injuries that leave you unable to work; for example stress-related illnesses, back conditions, loss of limbs, cancer or a serious heart condition. Most insurers have very few standard exclusions and...essentially, if it’s an illness or injury that forces you to take time off, it’ll probably be covered.  

What won’t be covered by my policy? 

Whilst it’s true that if you’ve bought your income protection policy wisely there are very few things that won’t be covered, there are a few things that most insurers will exclude no matter what.  

For instance, whilst it’s easier than you may imagine to buy an income protection policy with a pre-existing condition, you may not be able to claim if that condition is the reason you need time off of work.  

Chronic conditions are viewed similarly, and so are self-inflicted conditions - anything that occurs as a result of drug or alcohol abuse, for instance. Pregnancy is also something you can’t claim for - although many employers will offer paid maternity or paternity leave. You can claim for complications or conditions that arise due to pregnancy however.  

You also cannot claim your income protection pay out on the basis of being made redundant - it’s purely for people who are sick or injured and can’t work due to that. If you’re made redundant or fired whilst off sick and you’re receiving your income protection payouts, it’s possible that payments will continue but this is laid out in the fine print of your policy and decided on a case-by-case basis.  

The takeaway here is that your income protection insurance policy is what you make it. Take time to read through the fine print and make sure you’re making the right decisions for you.

References

[1] https://news.sky.com/story/number-of-long-term-sick-hits-record-high-of-2-6-million-12959783#:~:text=The%20level%20of%20illness%20among

,July%2C%20according%20to%20official%20figures.#:~:text=The%20level%20of%20illness%20among,July%2C%20according%20to%20official%20figures.