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What is income protection insurance?

Income protection insurance is a type of insurance policy that provides coverage in the event that an individual is unable to work due to illness or injury. The policy will typically provide a percentage of the individual’s income, up to a certain limit, to help cover costs such as rent, mortgage payments, and other bills.

This insurance policy pays out part of your monthly income when you need to take an extended time off work. It covers a wide range of conditions including cancer and mental health issues.

The payout is tax-free and you can use it however you want, to cover health-related costs or lost income while you get better.

Why do you need income protection insurance?

We believe income protection is the one policy every working adult should consider purchasing. Put simply, if you cannot cover your outgoings if you didn’t have an income, then this policy can help alleviate the shortfall. Furthermore, if you are self-employed or from a single income household, then this policy becomes even more beneficial to your peace of mind.

The majority of businesses in the UK only offer statutory sick pay, which can be paid for up to 28 weeks. If you are unwell or unable to work for a long period of time, you may need income protection insurance to cover your outgoings.

How does income protection insurance work?

Each month, you will pay a small amount towards your policy.

In the event that you cannot work, your insurer will pay out a percentage of your income, depending on the policy you have chosen.

You will then be paid a set amount each month until you are able to return to work.

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Income protection policy details:

  • Our income protection policies are designed for either the short term (up to 2 years per claim or illness) or long term (over 2 years until retirement age per claim or illness)
  • Pay-out is on a month by month basis
  • Income protection pays you an agreed portion of your salary each month
  • Our income protection policies do not cover you if you are made redundant or dismissed
  • Our income protection policies are available for those who are self employed

Income Protection Insurance FAQs

Am I eligible for income protection insurance?

To be eligible for income protection insurance, you must be working and earning an income. This cover is different to redundancy insurance policies, as you must be legally employed or self-employed. 

What is a deferred period?

It is a fixed period of time, decided by you, that has to pass before the insurance policy starts paying out. During this time, you might rely on company sick pay or your savings. Typically, you can choose from 4, 8, 13, 26 or 52 weeks before the policy starts paying out. The longer the deferred period is, the cheaper the premium but the longer you have to wait until the policy pays out.

How long should my deferred period be?

This is usually done to tie in with your sick pay. If you have 3 months of sick pay, then you would set your deferred period to 3 months. Some deferred periods can last up to two years.

How much money do you get each month?

The percentage of your income that you will receive depends on the policy that you have. Most policies will pay out between 50% and 70% of your income.

Do you pay tax on income protection payouts?

No, you don’t pay tax on the payouts.