Important: Due to the coronavirus outbreak, ActiveQuote will no longer offer unemployment coverage to clients, as insurers continue to exit the unemployment protection market during these unprecedented times. ActiveQuote will continue to provide accident and health coverage to customers.
Income protection is a type of insurance that pays out tax-free cash if you can’t work because of an accident, layoff, or illness. It is designed to give you peace of mind so that your household bills and expenses are covered while you are away from work.
It is a form of loss of earnings insurance, which means you are covered if your income decreases due to an accident, illness, or layoff. It could help you manage your debt during a tough time.
A good income protection policy can help you prepare for the unexpected, whether it’s an illness, an accident or a layoff. People sometimes call it accident insurance, termination insurance, or health insurance.
Income protection can give you the peace of mind that you can cover your essential expenses while you are not earning some or all of your usual income.
How income protection insurance works
Income protection insurance protects you if you have to make a claim because you are unable to work.
When you buy income protection coverage, you decide how much income protection insurance you need or can afford, and then pay a monthly premium.
It is not a savings product and there is no payment at the end of the term. If you do not need to make a claim during the term of the policy, you will not receive any cash. It’s like other types of insurance in that you’re protected as long as you pay the regular premium, but if your payments stop, so does the coverage.
There are two types of income protection coverage – short term and long term income protection coverage:
Short term coverage
Short-term income protection only lasts for a short time. It is usually between two and five years.
If you need to make a claim on a short term income protection policy and your claim is accepted, you will receive a monthly fee from the insurer to help you meet your bills and expenses. However, this payment is not indefinite and runs out after a specified period of time, according to the terms and conditions of the policy. Also, short-term coverage can cover fewer illnesses or problems. It tends to be cheaper than long term coverage.
Long term coverage
Long-term income protection insurance is sometimes referred to as permanent health insurance.
If you can’t work due to illness or injury, a long-term income protection policy will provide you with regular income until you are able to return to work. Otherwise, if you are not well enough to return to work, payment will be made until you retire or die, or the term of the contract ends. The length and scope of the policy depends on the option you choose when you first purchase it.
What is covered?
Income protection insurance is designed to help you financially if you are affected by an unforeseen life event such as:
- Lost wages
You can choose from three basic levels of income protection:
- Protection against accidents and illnesses
- Unemployment protection
- Protection against accidents, sickness and unemployment
Accident and sickness protection will pay off if you are unable to work after illness or injury.
Unemployment protection will cover you if you are made redundant or if you lose your job unexpectedly. However, your insurer will not pay if you simply quit your job or accept voluntary termination.
Accident, sickness and unemployment protection is the most comprehensive type of policy and will cover you for the above. It is also likely to be more expensive. What is covered in your policy may vary depending on the insurer, so it’s important to check your policy documents to make sure what’s included.
What are the different types of income protection?
The type of coverage you need will depend on your lifestyle, whether you have a family or other dependents, and whether you have existing insurance in your workplace.
Your employer may already provide sickness and accident coverage, so it’s worth asking first.
Mortgage protection insurance
This covers the cost of paying off your mortgage if you are unable to work due to illness, injury, or layoff. Learn more about how mortgage protection insurance works.
This is often referred to as Unemployment Insurance because it pays if you lose your job and need coverage for household expenses if your income drops. See our covid-19 disclaimer above.
Accident and sickness insurance
If you are injured or ill and unable to work, this covers you until you are well enough to return to work by paying regular replacement income based on the amount you have insured.
Loan protection insurance
If you have a lot of personal loans or a large loan and would have trouble making repayments if your income declined, you can purchase coverage to help pay the monthly payments.
Who needs income protection insurance?
If you do not have income protection insurance or long-term sickness benefit at work, or if you are self-employed or self-employed, you may be eligible for income protection coverage.
If you’re struggling to pay the bills if your income drops, you might consider looking for income protection insurance.
How much coverage do I need?
You can determine the amount of income protection you need by adding up all of your monthly household expenses and expenses. This includes mortgage or rent costs, food and utility costs, and any other regular costs that may arise. You can also include credit card bills and personal loan installments.
How much does income protection cost?
The cost of income protection will depend on your income or the amount you want to cover, the type of policy, the length of the policy and your age. Like life and health insurance, smoking can impact the cost of your income protection insurance due to the health risks associated with the habit.
The level of protection offered by the three types of policies is reflected in the amount you will pay, with more comprehensive coverage likely to cost more. The higher level of the policy covers you for injury and sickness as well as unemployment, so it gives you more protection than a basic accident and sickness policy.
Income protection coverage is typically billed as a monthly premium. Your premiums won’t necessarily stay the same throughout the life of the policy, especially if you’ve purchased coverage until you plan to retire. When you compare policies, you will be able to choose from policies that are fixed for the term of coverage or those that are subject to annual review.
The best way to find a good value for money income protection policy is to shop around. You can do this quickly and easily by comparing quotes. Just answer a few questions (you’ll be asked questions about your job, the type of coverage you want, and personal details, including if you’re a smoker) and you’ll be able to compare policies and quotes from major drug providers. income protection insurance, including Aviva, Vitality and Legal and General.
How does the process work?
Income protection allows you to set the amount you would like to receive if you are unable to work for one of the reasons specified in your policy. Most insurers will allow you to cover 55% of your gross monthly income, with a maximum level of 70%.
For example, if your net monthly salary is typically £ 2,000, you may be able to purchase income protection coverage up to £ 1,400 per month.
Although the product is known as income protection, you can choose to protect your income, mortgage, loan or credit repayment, or other financial commitment. You need to think about these essential expenses when deciding what level of coverage to purchase.
If you make a successful claim, your insurer will pay you the agreed amount in a tax-free monthly payment until you return to work or until the end of the maximum claim period (most policies will pay for a maximum of 12 months at a time).
Find out more
If you use our comparison tool to get an income protection insurance quote, you will be able to see the products offered by different insurers. You will just need to put in some personal details and decide what you want the coverage to protect and how much you need to cover.