What is Income Protection Insurance?

For a lot of us, being too ill or injured to work could cause serious financial worries. How would you be able to cover your bills? What would happen to your loved ones if you were unable to contribute?

Here at Wiltshire Friendly, we understand these concerns and are here to help! We are a dedicated income protection provider. But what is income protection insurance, what does it cover and how does it work? We will answer all of these questions in our handy guide.

What is income protection insurance?

Income protection insurance is a long-term insurance policy that ensures you receive a regular income if you are unable to work through illness or injury. You will receive this regular income until you retire or are able to return to work.

Income protection insurance is not the same as critical illness insurance. Critical illness insurance pays out a one-off lump sum if you have a serious illness.

What does income protection cover?

Depending on the policy you take out and the company that you purchase from, income protection insurance covers most illnesses and injuries that prevent you from working.

As long as your policy is still ongoing, it replaces part of your income if you suffer a loss of earnings until recovery, retirement or death. The typical payout is between 50% and 65% of your income. You can claim as many times as you need to while the policy lasts. The cover will not pay out if you are made redundant.

Usually there is a waiting period before the payments can start. Depending on your policy, you can choose your waiting period. The longer the wait, the lower the monthly premiums are. The most common waiting periods are 4 weeks, 13 weeks, 26 weeks and a year.

How much does income protection insurance cost?

Income protection can vary in cost depending on your policy, the level of cover and your individual circumstances. Factors that can impact your monthly premiums are:

  • Your age
  • Your occupation
  • The percentage of income you want to cover
  • Your overall health - current health, weight and family medical history
  • Whether or not you smoke or have smoked
  • The waiting period
  • The range of illnesses and injuries covered

The cost will also depend on whether you choose 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 more in the short-term, but most people like the security of knowing their regular charges.

Who needs income protection insurance?

Income protection insurance isn’t necessary for everyone. For example, if your employer offers an income protection benefit that will pay full sick pay for the duration of your recovery; you can survive on government benefits; you can use your savings to pay for your regular expenditure; or your family have the money to support you for the entire period, you probably don’t need income protection insurance.

However, if you only get statutory sick pay (£109.40 a week) or you’re self employed, it is worth taking out a policy to ensure you are covered just in case. Another reason you may find it necessary to look into income protection insurance is if you have a particularly ‘dangerous’ job. This can include construction, manufacturing or professional sports - as if you get injured at work, you will be unable to work until you are fully recovered.

If you do take out income protection insurance, you need to find a balance between setting your monthly premiums at an affordable level while ensuring that your bills will be covered if you do need to make a claim.

How do I buy income protection insurance?

As we’ve discussed above, insurers can use differing criteria and premiums can vary significantly, so it is worth researching different policies and finding one that suits you. The best way to ensure you purchase the correct policy for you is to get advice from a specialist broker ). They take the time to go through all of your options, discuss the various policies in detail and answer your questions to ensure you choose the appropriate policy for your needs.

There are also dedicated insurers for people who have been declined insurance because of a medical condition or because they do a job that isn’t covered by standard policies.
What is the difference between income protection insurance and payment protection insurance? 

Income protection insurance and payment protection insurance (PPI) have different purposes within the insurance landscape. As we have already discussed, income protection insurance is a safety net for individuals who experience illness, injury, or disability and are rendered unable to work. In such situations, it steps in to provide financial support by replacing a portion of the policyholder's income. 

Payment protection insurance (PPI), on the other hand, is a specialised type of insurance that covers the repayments on a specific debt, such as a mortgage, loan or credit card if you were unable to work due to illness or injury. 

The focus of PPI is not to replace income but to cover specific credit-related payments. This protection helps the policyholder avoid defaulting on their financial commitments, thereby preventing potential damage to their credit score, additional fees, or interest charges associated with their credit agreements.

How Wiltshire Friendly can help

Wiltshire Friendly is a specialist income protection provider. We provide income replacement cover to individuals, employers and amateur, semi-professional and professional sports players who have lost their income due to illness or injury preventing them from working.

To make a claim, apply for increased cover or discuss your individual requirements with us and discover how we can help you, please contact us today.