The top asked questions about income protection
Got some questions about income protection and what it is? We’re not mind readers but we have a sneaky feeling you’ll have a couple of questions or else you wouldn’t have clicked on here in the first place!
Let’s look at some of the most frequently asked questions about the life insurance policy that has a whole week dedicated to it.
What is income protection?
The purpose of this type of cover is to financially protect your income so that if the worst were to happen, you’d still be able to pay the bills and afford the things you need to get by in life.
How does income protection work?
This policy works by paying out up to 60% of your income to you every month. The cover will pay-out if you were to be diagnosed with an illness or retain an injury and were unable to work as normal.
Your regular payments will start once your waiting period is over (keep reading to find out what this is) and these payments can continue until you’re able and ready to go back to work as normal, depending on your payment period.
Can self-employed people get this policy?
For those starting out as their own boss, during the initial stages business can eb and flow, finances can be fragile and things can fall apart. An income protection policy could financially protect you if you’re self-employed.
In the event of you becoming ill or injured, this type of cover will pay out up to 60% of your income each month, ensuring you can recover without having to worry about your financial situation.
Do people even use their cover?
YES!
According to Money to the Masses, of all the different types of personal insurance you can get, income protection is the personal insurance you are most likely to claim on. There’s also a whole lot of claims data out there and the numbers don’t lie! For example, looking at LV’s 2021 claims data, their top 5 reasons for claims on an income protection policy are:
- Musculoskeletal (20% of claims)
- Fractures (20% of claims)
- Cancer (17% of claims)
- Mental health issues (15% of claims)
- COVID-19 (4% of claims)
Consider thinking about if you’ve ever suffered with any of these illnesses or maybe you know someone who has? Most of these are, sadly, very common (I think we’ve all had Covid at this point)!
What is covered by income protection?
Income protection covers you for most illnesses and injuries and is one of the most comprehensive types of life insurance you can get as there really isn’t much that’s not covered under it.
But every life insurance policy is unique and a lot of it boils down to your own unique health history which is why it is always worth seeking expert advice when it comes to cover like income protection!
How much does income protection cost?
The price of your cover is fully dependent on you and your personal circumstances. There are certain variables that will determine the price of your policy, for example:
- Family health history
- Your own health history
- Your BMI
- Whether or not you’re a smoker
- Your job
- Your hobbies
If your health history was more complex or if you had a dangerous job, your monthly premiums could become more expensive. However, there are elements of the cover that we can amend in order to help make these cheaper, such as:
- The length of your deferred period
- How much cover you get
- The length of your policy
- Your payment period
If you want a quick estimation of how much your income protection policy could cost, try out our brand new income protection calculator. Our easy-to-use calculator can predict how much your policy could roughly cost in just 30 seconds, click below to try it out!
What is a deferred period?
Your deferred period, often referred to as a ‘waiting period’, is the time period between becoming unable to work and your income protection payments starting.
Typically, you will have the choice between 4, 8, 13, 26, 52 week long deferred periods. The shorter the deferral period, the more expensive your monthly premiums are likely to be because this means you will have less time to wait to get your payments. This time period can be modified to suit your circumstances, needs and budget and is something that our income protection specialists can advise you on.
What is a payment period?
This is simply the amount of time you could receive your income protection payments if you made a successful claim on your policy. Typical payment periods are as follows:
- 12 months
- 24 months
- 60 months
- Until the end of your policy (could be retirement age)
It is common for people to have a payment period that lasts up until their retirement age, meaning that if you were unable to work as normal, your payments could cover you for the entirety of your working life. This element of income protection means that we can tailor it to your budget, with shorter payment periods equalling more affordable premiums.
What’s the difference between income protection and SSP?
We won’t beat around the bush - there’s a big difference between the two.
Statutory sick pay (SSP) is a mere £99.95 a week in the UK (correct as of October 2022) and only lasts just 28 days.
Whereas income protection insurance can pay out for years and can end if/when you are well enough to go back to work. A great example of this is Aviva’s longest-running income protection claims ran for more than 37 years. It originally started only a short time after the customer took out the policy and while they were still in their 20’s.
Income protection provides a great alternative to sick pay. But if you have sick pay in place with your employer but you also have an income protection policy then providers may reduce your pay-out amount. This is why our income protection specialists will align your deferral period with your sick pay to ensure your policy works best with your circumstances.
Should I get income protection or critical illness?
If it works with your current budget and fits with your insurance needs then we may recommend both policies. But the crucial question to ask when thinking about these two types of policies is if the worst were to happen, would you need smaller payments or one large lump sum?
Whilst an income protection policy provides small monthly bursts of cash, a critical illness policy will pay-out a large lump sum. Critical illness insurance is designed to provide a one-off lump sum that will give you and your loved ones a financial boost. It will pay-out if you were to be diagnosed with a defined critical illness. Once your lump sum is paid out, the policy will end, unlike income protection which will pay out each month.
What we do
At Caspian, we can help you tailor an income protection policy to your needs and circumstances. If you’ve read anything that’s sparked your interest then click the button below to start your free income protection quote today - what are you waiting for?
