Frequently Asked Questions On Income Protection

December 12th, 2019
Frequently

Get the answers to FAQs on income protection policies, then compare quotes to find the right deal for you.

What does insurance for income protection mean?

If you found you were unable to work due to injury or illness you can be covered by Income Protection Insurance (IPI). This would give you monthly pay to compensate you for loss of earnings.

You can find out more about this in our beginner’s guide to income protection insurance.

Is it necessary to take out income protection insurance?

In the event you were unable to work, this type of cover protects you with a payout to help you cover your bills and living expenses.

In what type of situation would I be protected?

The three main instances that might affect you and for which you would need cover to meet your financial commitments are:

  • Accident, sickness and unemployment cover (ASU)
  • Unemployment only
  • Accident and sickness only

What percentage of my earnings can I claim with income protection insurance?

The claim amount is usually up to 70% of your gross earnings and is normally tax free. This figure is typically based on your net monthly income which is after tax has been deducted, less any state funded benefits that you may be able to claim.

There are also ‘benefits in kind’ or P11D benefits which some insurance companies will offer. This will protect the value of any employment benefits you may receive such as a company car or private health insurance.

What is the duration of my payout period?

The benefit period will usually be for a fixed period which will be when you are able to return to work or when the policy expires. Payouts will depend on your policy cover, though, and it’s wise to check your Terms.

What is the number of years that my income protection policy will last for?

Most insurers will only offer protection up to retirement age, which is generally regarded as 70. You can use Freepricecompare.com and enter any time length between 1 and 70 years to get a quote. Provided you keep up with your monthly premiums the policy will remain valid for that time length.

What does a guaranteed policy mean?

With this type of cover, your premium is fixed for the duration of the policy, unless you decide to increase your cover. In the short term, this type of cover can be the most expensive although, in the long term, it may prove to be more effective.

Are you aware…?

  • Some providers will only offer to cover your income if you are unable to work in your usual job, so you could get no payout if you are able to work in another job; others will pay out if you’re unable to work at all.

What does a reviewable policy mean?

In this type of policy, premiums are regularly reviewed; the premium might change after review if you undergo health changes or as you get older.

Reviewable policy cover will often begin less expensively than guaranteed policies; however, they can become more costly as they progress.

What is the meaning of an age-related policy?

As you get older, your policy premiums will increase, year by year. This type of cover is usually a more common choice for smokers and anyone in a high-risk occupation as they are more at risk of needing to make a claim.

How does short-term income protection insurance work?

If you take out short-term income protection, the policy will offer protection for a fixed period after a successful claim; this is usually for approximately six months to a year.

How does this differ from long-term income protection insurance?

With long-term income protection, the difference is that the cover is provided if you fall seriously ill or become terminally ill and you are unlikely to be able to work again.

What is the definition of mortgage payment protection insurance (MPPI)?

When you take out cover known as mortgage payment protection insurance (MPPI) you can gain cover for the amount of your monthly mortgage payments whilst you are unable to work due to an accident, illness or loss of employment.

What does unemployment protection insurance mean?

Unemployment protection insurance is a type of income protection should you become unemployed. It provides you with a monthly payout for a predetermined period. It is often referred to as redundancy insurance.

What is the definition of loan protection insurance?

With this form of income protection, you can be covered for the amount of your monthly loan repayments. Loan protection insurance can be taken out to protect you in the event of accident, illness or unemployment.

What is payment protection insurance (PPI)?

Payment protection insurance (PPI) also protects your income if you are unable to work due to accident or illness. It will protect you for any loan repayments you have and minimum monthly credit card payments.

How does income protection differ from critical illness cover?

If you are too unwell to work, short or long term, the correct income protection policy should pay out a regular sum of money. In the case of critical illness protection, if you are diagnosed with a specifically mentioned condition on your policy which would mean you were unable to work again, you can be covered.

What does a deferred period relate to?

This term is sometimes referred to as a wait period. The policy will pay out cover after a certain length of time, typically between 4 and 52 weeks. Sometimes you can have the choice to have payments back-dated to the day when you were unable to work; the latter is known as a back-to-day-one option.

Where can I obtain advice about income protection

  • If you visit Freepricecompare.com’s income protection quote page, you can get objective advice from calling our Free 0800 helpline.

What do occupation classes mean?

The part of your cover known as occupation class helps determine the amount of your premiums and when you are eligible for a payout. The three most common class options are:

  • Own occupation: this is usually the most costly and provides cover if you are unable to perform your specific job
  • Suited occupation: this provides protection if you cannot work in a similar job suited to your experience and skills
  • Any occupation: this policy cover will payout if you are unable to work at all and is often the cheapest choice.

If I’m self-employed, can I still get income protection?

If you are self-employed, most insurers will assess your individual circumstances; those who are self-employed are the group who most often take out IP cover.

Are there any other benefits I can obtain by taking out income protection insurance?

Apart from getting a regular monthly payout, some additional benefits you could be entitled to are:

  • A lump sum payout upon death
  • Cover for terminal illness
  • Support for rehabilitation costs
  • If you become incapacitated, you’re premiums are waived

How much would I need to pay for income protection insurance?

Gender is no longer a factor, after the 2012 European Court of Justice gender directive.

There are various other factors, however, that will be taken into account when working out the cost of your premium, some of which are:

  • Your occupation
  • Medical history of yourself and your family
  • If you are a smoker
  • Your age
  • Your level of alcohol consumption

Are there any exclusions that are placed on income protection policies?

It is advisable to study the Terms and Conditions of your policy carefully for any exclusions that could invalidate a claim. It is important to enter accurate information in your application in order not to invalidate a claim.

The most common exclusions are:

  • Self-inflicted injuries
  • Pre-existing medical conditions (which you were aware of before taking out cover)
  • Any disabilities or illness arising as a result of a criminal act
  • Alcohol or drug abuse
  • Pregnancy

You might also like to visit:

  • How health affects premiums
  • Protection policies for sports people

Would income protection payments affect entitlement to state benefits?

It is possible. Means-tested benefits are likely to be taken into account with any other benefits you may receive.

Are there any other options instead of income protection?

Your current employers may already offer a sickness and redundancy package. There may be state benefits you could be entitled to and you may already have protection products in place, such as critical illness cover and/or life insurance, to protect you and your family.

Another option is self-insurance: you could save the money that you would have paid in premiums and use it to build up your own funds.

However to match the sort of sum offered by policies like life insurance, critical illness cover and income protection, you would need to save a very large amount of money. See: rainy-day savings fund.

For answers to any further questions, see our income protection insurance guides.

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