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VitalityWhat is income protection insurance?
Income protection is sometimes called accident insurance, redundancy insurance, or sickness insurance. It can help you or your family if you're unable to work because of illness or redundancy.
It can provide some much-needed cash at a difficult time so you’re able to pay your household bills and meet other costs.
How much cover you need depends on several factors, including whether you have dependents and what your regular outgoings are.
Sickness benefits
It’s worth noting up-front that not everyone needs income protection. For example, sick pay may already be included in your workplace benefits or pension scheme.
But if it isn’t or you don’t have a workplace pension with these benefits, or you’re self-employed, you might benefit from having income protection cover.
How does income protection insurance work?
With income protection insurance you pay a monthly premium in return for cover. It pays out a proportion of your regular income if you're unable to work, so you can afford to continue managing the household budget.
The amount you may pay in premiums, plus the level of cover will differ between policies. Typically, you receive between 50% and 70% of your regular income until you're able to return to work.
Shop around for the best type of income protection cover to suit your needs.
Consider:
- Your household costs
- Your salary
- Members of your family who might be dependent on you
- Your intended retirement age
Income protection options
You can buy various types of income protection insurance, with options that are designed to suit specific requirements. The main ones are:
Mortgage protection insurance
This covers the cost of repaying your mortgage if you are unable to work due to sickness, injury or redundancy. Find out more about how mortgage protection insurance works.
Redundancy insurance
This is often called unemployment insurance because it pays out if you lose your job and need cover for household expenses should your income drop as a result.
Accident and sickness insurance
If you're injured or ill and unable to work this covers you until you’re well enough to restart work by paying a regular replacement income based on the sum you have insured.
Loan protection insurance
If you have a lot of personal loans, or one large loan, and you’d struggle to make repayments if your income dropped, this cover can help you pay the monthly instalments.
How much will income protection insurance cost?
When you receive a quote for income protection cover it will be the monthly cost of the premium.
Depending on your policy, your premiums will either be:
- Fixed for the term of the policy, which means they won’t rise
- Variable, which means that your policy could become more expensive over time
The best way to find a good-value income protection policy is to shop around. You can do this quickly and easily by comparing quotes with Uswitch.
What are the different types of income protection insurance?
You can buy cover for the short term - for up to five years, or you can set up a long-term income protection policy which might cover the whole of your working life.
Short term income protection cover
Short-term income protection insurance pays out a monthly sum from the insurer if you need to make a claim and the claim is successful.
This type of cover can help you pay bills and meet expenses in the short term.
Although short-term cover is cheaper, there are likely to be more exclusions and it may cover fewer illnesses or issues.
Also, the monthly payment will be paid out for a set time, and not for the rest of your working life, so you’ll eventually have to find other ways to pay for your outgoings.
Long term income protection cover
Long-term income protection insurance is sometimes known as permanent health insurance.
This is a much more comprehensive policy, but it is also much more expensive than short-term cover.
If you make a claim, you’ll receive a regular income until you can return to work. If you’re unable to return to work, the policy will pay a regular sum until the policy term ends, or until you die or retire. The exact payment terms and policy details will depend on the type of policy you buy, and what options you pick.
How much income protection insurance cover do I need?
This depends on your salary, lifestyle and current costs.
You may not need or be able to afford insurance to cover your total salary in your income protection plan. But the monthly payout should be enough to cover your current household costs and other expenses.
Which costs need to be covered if you're out of work?
Go through your recent bank statements and work out what you spend on food, mortgage, rent, travel, living and other costs in an average month. This’ll give you a basic idea of how much you’d need to find just to pay for essentials.
After this, you can work out where you might have to economise if you were unable to work.
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