Accident and sickness cover
This cover will pay out if a serious injury or illness prevents you from working. It can also include cover for mental health illnesses
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1Correct as of February 2024.
Income protection insurance – also sometimes known as accident, sickness, and unemployment cover – is a type of insurance that will protect your income if a serious injury or illness prevents you from working.
It’s marketed especially to self-employed workers and those with their own business. But, even if you aren’t self-employed, it’s worth considering an income protection policy if you have dependents, debts or loans to repay, you don’t receive sick pay or you don’t have savings.
Income protection pays out a regular sum of money if you’re unable to work. Here’s how it usually works:
You’ll need to give personal and financial details when applying for a new policy. There are lots to choose from so remember to compare insurers, policies, and quotes before deciding.
You can choose how much cover you need and whether you want a lump sum or regular payments to be made. You will also need to read the terms and conditions carefully so you know when you’re able to use the policy.
To claim on your policy, you’ll need to contact your insurer to tell it what’s happened. It will then arrange for the money to be paid to you, and it may request evidence such as a doctor’s note first.
Just 6% of the population had any form of income protection (including employer sick pay schemes) in 2021, according to the Income Protection Task Force (IPTF).
When you buy income protection you can choose what outgoings you would like a policy to cover. This can include your income, your mortgage or rent costs, loan or credit repayments, or other expenses such as household bills or childcare fees.
You will also need to decide how long you would need the money to be paid out for. There are long and short-term policies to choose from and you’ll usually need to choose between the money being paid out for a set period of time, two years for example, or until you retire.
There are other types of financial protection available too.
Payment protection insurance (PPI)* will cover all or part of the repayments for outstanding loans if you stop earning. The payout you’re entitled to is determined by your outstanding debt.
Mortgage payment protection (MPPI)* will cover part or all of the cost of your mortgage payments if you can't work. Monthly benefits are based on your mortgage repayments and some policies can continue to pay out until the date that your mortgage is paid off.
There are different types of income protection depending on what you are looking to cover.
This cover will pay out if a serious injury or illness prevents you from working. It can also include cover for mental health illnesses
Unemployment insurance will cover you for unexpected redundancy on a short-term basis. It will only cover cases of forced redundancy and not voluntary unemployment
This combined cover will cover you for most cases of incapacity, including injuries, illnesses, and forced redundancies
The cost of an income protection policy depends on a number of factors. The cost can also change over time depending on the type of premiums your policy has - whether they're fixed, reviewable, or increase based on your age. These details are what affect the cost of your income protection policy from the start:
Because pay-outs are based on your salary, having a higher salary usually means that your policy will be more expensive
Some providers allow you to choose how much of your salary you want your income protection pay-outs to cover. A greater percentage will increase the cost of your policy
Having an occupation with greater health risks or an occupation that is physically or mentally demanding will usually make insurance more expensive because you are more likely to make a claim
Choosing a longer deferred period can save you money on an income protection policy. However, it also means that you will need to be able to financially support yourself for longer while you aren’t working
Having existing health conditions can make income protection policies more expensive, particularly if you want your income protection policy to cover these conditions. It’s important, however, that you’re honest with your provider and don’t withhold important medical information
Policies that have longer claim durations, especially those that pay out until retirement age, are more expensive than those that have a limit to the length of each claim
The number of people who are unable to work due to health problems has reached a record of 2.5m, according to figures from the Office for National Statistics released in May 2023. In other words, out of every 13 people currently working, one person is long-term sick leave. Sadly many of us dramatically overestimate the amount of state aid we would receive if we get signed off work long term: Statutory Sick Pay is just over £100 a week*. Not exactly enough to cover all your expenses, now is it?
The good news is that thanks to income protection insurance, there are ways that you can protect yourself should poor health mean that you are unable to work. And it is more affordable than you might think.
Kara Gammell Personal Finance Expert
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There are different types of income protection depending on what you are looking to cover.
Own occupation cover means that you can claim on your income protection policy if a medical condition prevents you from working in your specific occupation. Your medical condition doesn't need to be debilitating.
You can only claim if an injury or illness prevents you from working in your occupation or any similar occupations that suit your qualifications, even if similar occupations have a lower salary than yours.
You can only claim if your medical problems prevent you from working entirely. Your insurer would have to decide that you are unable to work in any occupation to approve your claim.
Income protection will pay out if you lose your job as long as you have the right cover. With an accident and sickness policy, you will be covered only if a medical condition causes you to lose your job. If you have unemployment cover included in your policy, then you will also be able to claim for forced redundancy.
However, there are exclusions to consider. Unemployment cover won’t protect you if you lose your job due to poor performance or industrial action. Unemployment cover also won’t cover you if you voluntarily left your job.
If you have calculated the cover you need correctly, your income protection benefits can cover your mortgage repayments as well as your basic living expenses.
If you are looking for a financial protection insurance that covers only your mortgage repayments, then you also have the option of taking out mortgage payment protection insurance. Mortgage PPI is usually cheaper than income protection insurance. While this insurance type is unlikely to cover your day-to-day expenses, it can cover some or all of your mortgage repayments.
Yes, income protection will cover you if you are self-employed. Rather than benefits being based on a salary, your income protection benefits are calculated from your average monthly earnings.
There may be a difference in terms for self-employed policyholders, however. For example, self-employed professionals and business owners technically cannot claim for unemployment cover with an income protection policy because they cannot be forcibly made redundant. They will only be covered for accidents and sickness.
Policies can last until you reach retirement age. However, the length of time during which you can claim benefits will depend on your policy and the type of cover you want. Most policies that cover unemployment - either unemployment cover only or ASU cover - have a limited claim duration, which is usually one or two years. You can still claim multiple times on these policies but each claim has a time limit.
However, some accident and sickness policies can pay out until you reach retirement age if your medical condition is serious enough to prevent you from working for that long. As well as being able to claim multiple times, these policies allow you to claim continuously on a long-term basis.
Make sure you read the terms of your policy carefully to find out if any claim duration limits apply to your cover.
Yes, you can adjust your income protection benefits to match any changes in your salary. Your income protection benefits should be based on your most recent salary before you became unable to work.
If your salary decreases and you need to adjust your policy's cover, you should inform your insurance provider. They will calculate your new income protection benefits based on your new salary. Depending on the terms of your policy, this may mean that your premiums will change as well. Make sure you read your policy documents carefully to determine if this is the case.
Depending on the terms of your income protection policy, your income protection benefits can be affected by any sick pay or state benefits that you claim. Some income protection polices will deduct these amounts from your income protection benefits while you receive them, so the total income you receive from your insurance, sick pay, and state benefits will be equal to the proportion of your salary that your income protection policy is supposed to cover.
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