How does Income Protection Insurance work?

Find out more about Income Protection Insurance, to see how you could insure your income against unexpected job loss or redundancy.

Income Protection Insurance works by paying out a tax-free monthly sum if you’re made redundant or are unable to work because of an accident, illness or injury.

When you make a claim, the monthly benefit is paid straight into your bank account, acting as a financial safety net to help cover any essential outgoings.

With up to 12 monthly benefit payments available per claim, Income Protection Insurance gives you peace of mind. Without having to worry about how you’ll pay the bills, you’ll be free to focus on finding a new job, or restoring your full health so you can return to work.

The amount of money you receive depends on how much you earn, but could be up to 65% of your gross monthly income.

Am I eligible for Income Protection Insurance?

When you buy Income Protection Insurance, you’ll be asked some simple questions about your employment situation, to determine your eligibility and help find the type of cover that suits you best.

To qualify for Income Protection, you need to be aged between 18 and 64, and a permanent resident of the UK, Channel Islands or Isle of Man.

As long as you’ve been working full-time (+16 hours per week) for the same employer, for more than 6 consecutive months, you should be able to purchase a policy.

When buying Income Protection, you must be able to confirm that you’re not aware of any potential redundancies or restructuring in your place of work, or any possibility that your job could be at risk in the near future.

You don’t need to have a mortgage to purchase a policy, but it’s important that you tell us about any financial commitments you have (such as a loan or payments towards a car), so that we can tailor your cover to suit your monthly outgoings.

Do I need Income Protection Insurance?

You might not be sure whether you need Income Protection Insurance, particularly if you’ve never been affected by redundancy, or had to take time off because of an illness or injury.

But in our ever-changing times, protecting yourself against the unexpected is more important than ever.

Have you ever thought about what you’d do if your usual income were to stop without warning? Do you know how you’d pay the bills and put food on the table if you were suddenly unable to work?

If you’re not sure, then Income Protection could be the perfect solution.

In the event that you’re made redundant, there is the option of Job Seeker’s allowance. But at just £73.10 per week for adults over 25, this is likely to be nowhere near enough to cover even the most basic necessities.

When it comes to savings, studies show that many people in the UK don’t have a lot to fall back on. Recent research by the Office for National Statistics (ONS) revealed that as many as a quarter of UK households have less than £95 saved up.

Fortunately, this is where Income Protection can help. Protecting up to 65% of your income, the monthly benefit payments act as a financial safety net, covering your essential monthly outgoings until you return to work or find a new job.

What happens when I make a claim?

If you lose your job and need to make a claim for unemployment, you’ll need to be registered with your local Job Centre, and be able to prove that you’re actively seeking work. As part of your Job Seeker’s Agreement, you must be able to provide evidence of your job search to our Claims Team.

When you’re made redundant, you’ll need to get past what’s known as an Initial Exclusion Period (IEP) before you’ll be eligible to claim. The IEP lasts between 60 and 120 days depending on the individual policy.

It’s important to note that if you’re made redundant during the Initial Exclusion Period, you’ll need to contact us as soon as possible to cancel your policy, as any claim you make would not be valid.

If you fall ill, or suffer an accident or injury and need to claim, you won’t need to pass an Initial Exclusion Period. When you claim for accident or sickness, you simply need to wait for your Excess Period to pass before you’ll receive the first payment.

Chosen by you at the time of purchase, the Excess Period lasts either 30, 60, 90 or 120 days, and applies to both accident and sickness, and unemployment policies.

Because you’ll be supporting yourself during this time, it’s crucial that you think carefully about how long you want the Excess Period to last. Most people tend to be confident that they could survive for the first month without payment, and so opt for a 30-day excess, but you should choose the one that’s right for your individual circumstances.

If you’d like to receive your monthly benefit sooner, there is the option of a ‘back to day 1’ excess, which will pay you in arrears from the very first day of your claim, although do bear in mind that the shorter the excess period, the higher your monthly premium will be.

For more information on Income Protection Insurance, or to purchase a policy, we recommend speaking to one of our advisors. As dedicated Income Protection specialists, our team will get to know your situation, before comparing quotes from the best insurers on the market.