What does Income Protection Insurance cover?

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

Income protection insurance covers you if you lose your job unexpectedly, or are unable to work because of an accident, injury or illness.

Just like an emergency parachute, or the life jacket under your seat on an aeroplane, this type of insurance gives you peace of mind, knowing that you’ll still be able to support yourself and your family even without a regular income.

With income protection in place as your personal safety net, you’ll be able to take the time you need to recover, or look for a new job, without feeling pressured or having to worry about how you’ll pay the bills.

Offering up to 12 benefit payments in any one claim, this type of insurance provides financial security in the short-term, by paying a tax-free monthly sum straight into your bank account.

The amount of money you receive is linked to how much you earn, but can be up to 65% of your gross monthly income.

Am I eligible for Income Protection Insurance?

To be eligible for income protection insurance, you must be a permanent resident of the UK, Channel Islands or Isle of Man, working full-time (16 hours a week or more).

As long as you’ve been in the same job for at least 6 consecutive months, and aren’t subject to any form of enquiry or disciplinary procedure by your employer, you should be able to purchase a policy.

If you’re buying an unemployment policy, it’s also important that you aren’t aware of any risk to your role, or impending redundancies or restructuring within your department.

When it comes to accident and sickness, you should be able to claim for any illness, injury or accident that leaves you unable to work, as long as it isn’t related to a pre-existing condition that you’ve suffered during the last 12 months.

How much money could I get, and are there any restrictions?

When you purchase Income Protection, you’ll be asked how much you’d like to receive per month during a claim, known as a monthly benefit amount.

The amount of money you can have depends on your wage or salary, but could be up to 65% of your gross monthly income.

When choosing a benefit, it’s important to remember that you don’t need to go for the maximum that’s available.

You should select an amount that gives you enough to cover your essential outgoings, while making sure that the monthly premium is still affordable, even if your income were to stop.

Because the payments you get are tax-free, you don’t need to use the money to cover any particular financial commitment. Some people do use their benefit payments to help keep up with mortgage or loan repayments, but you can use them however you wish.

Exclusion periods and Income Protection Insurance?

If you buy an unemployment insurance policy, you’ll need to get past an Initial Exclusion Period before you can make a valid claim. Depending on the individual policy, this one-off time period lasts either 60, 90 or 120 days, and is in place to prevent people purchasing insurance and then making a claim straight away.

If you are made redundant or told that your job is at risk during the Initial Exclusion Period, you’ll need to contact us to cancel the cover, as you won’t be able to make a valid claim.

Both accident and sickness, and unemployment income protection policies also come with an excess period. Chosen by you at the time of purchase, this refers to the amount of time you’ll have to wait before receiving your first payment, after you make a claim.

It’s important to think carefully about which excess period is right for you, because you’ll need to be supporting yourself financially during this time.

Many of our customers are confident that they can get by for the first month, and therefore choose a 30 day excess period, but if you think you need the money sooner, there is the option of a ‘back to day 1’ excess which pays out in arrears from the very first day of a claim.

In general, the shorter the excess period, the higher the monthly premium will be, so do bear this in mind when customising your cover.

For more information on income protection insurance, or to buy a policy, it’s always a good idea to speak to an advisor. Our team of income protection specialists are experts in the industry, and they’ll take your situation into account before searching the market to find the best policy for you.