Income Protection Insurance helps to protect your income if you were unable to work as the result of an accident or sickness.

Income Protection Insurance could provide you with a tax-free income and could continue to pay out until you are able to return back to work or until you retire.

How does Income Protection Insurance work?

It pays out a monthly benefit if you cannot work due to illness or injury. The benefit can be used to help pay monthly bills, replace income and/or cover mortgage payments. Most Income Protection policies will provide monthly tax-free payments equivalent to between 50% and 65% of gross salary, although some companies will offer up to 75%. This cover does not typically include redundancy cover.

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Who would benefit from Income Protection Insurance?

  • Employed people: illness or injury could render you unable to work and you could suffer from a loss of income during this period.
  • Self-employed people: a long-term illness or injury could threaten your whole livelihood.
  • Single people: an Income Protection Insurance plan could help provide financial security and peace of mind.
  • Housepeople: if you suffer from long-term illnesses or injuries, you may need support around the house and with the family. Any income paid out from this policy could help cover the cost of domestic support etc.

To speak with one of our advisers, who will be happy to discuss your options and provide you with a quote (which will always be confirmed in writing) from one of the UK’s leading life insurers, please call us on 0800 644 4468

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The varying occupation covers explained

  • Own Occupation

    An Income Protection plan with the ‘own occupation’ definition of incapacity pays out if you suffer sickness or injury that prevents you from working in your current job. Unlike some cover, a policy with an ‘own occupation’ definition of incapacity will simply pay out, rather than requiring you to do an alternative job of which you are capable.

    For example, stress could develop from having a high-pressure role, meaning that you can no longer fulfil the duties of your occupation. In this case, the insurer would pay out (stress being a valid reason to claim), rather than asking you to take a less stressful position elsewhere. In most cases, we strongly advise Income Protection policies with this definition of incapacity.

  • Suited Occupation

    An Income Protection plan using the ‘suited occupation’ definition of incapacity provides a lesser degree of cover than a policy with the ‘own occupation’ definition. Rather than paying out upon incapacity, the insurer may require you to return to work in an occupation for which you are suited. The insurer will determine what is a suited occupation based on your skills, training, qualifications and experience.

    For example, you might be a qualified accountant working as the financial director of a large company, but due to stress you can no longer fulfil the duties of your position. A ‘suited occupation’ policy would cover you, but the insurer may require you to take a less stressful accounting position at the same firm or elsewhere, rather than paying out immediately.

  • Any Occupation

    The ‘any occupation’ definition of incapacity will cover you, but means that rather than paying out immediately, the insurer may ask you to undertake any occupation for which you are medically capable.

    For example, a surveyor who must physically inspect various properties could claim on a condition that prevents them from walking. They would be covered under both an ‘own’ or an ‘any occupation’ plan, but the ‘any occupation’ plan would mean that the insurer would only pay out if the policyholder were incapable even of taking an alternative office-based position. This definition provides reduced earnings protection in comparison to a policy with an ‘own’ or ‘suited occupation’ incapacity definition.

Definitions of incapacity with Income Protection

Work tasks/Activities of daily living
Using a ‘work tasks’ or ‘activities of daily living’ definition of incapacity provides the lowest level earnings protection. If you were covered under this definition, the Income Protection policy would pay out based on your ability to complete certain tasks.

Common tasks include walking, bending, lifting, climbing and seeing. A policy would usually pay out if two or more of these tasks cannot be completed without further risk to health. We do not usually recommend this type of policy unless you are ineligible for a policy under other occupation definitions.

Deciding which occupation definition

It is usually advisable to take out a policy using the ‘own occupation’ definition of incapacity, as it provides the highest level of earnings protection and reduces the chances that the insurer may decline a claim. In other words, you know exactly where you stand with an ‘own occupation’ definition for Income Protection.

However, it is not always possible to take out a policy with this definition of incapacity. Some occupations are ineligible for this type of cover. For example, a number of insurers exclude certain manual occupations from ‘own occupation’, especially if they involve working at heights. In this case, an ‘any occupation’ or even a ‘work tasks’ definition may be applied (we will be able to tell you the definition applied when you receive your Income Protection quotes).

For some manual jobs, a ‘work tasks’ definition may still provide value, as the highest risk to this class of work is likely to be of a physical nature. For example, a fall that injures the back could quite easily mean that you are unable to safely walk, lift or bend, and so would be covered by the plan.

Additional benefits and considerations

As you would expect, schemes differ from insurer to insurer. Although the cost of the premium is obviously something that you will be considering, the additional benefits of protection should also be taken into account. These may include:

  • An indexation option, which will help protect any benefit from the effects of inflation.
  • Hospitalisation benefit, which is an additional payment that you would receive if you spend a certain amount of time in hospital (terms vary from insurer to insurer).
  • Proportionate benefit, which means that following a claim, if the policyholder returns to work in a different job or for a lower income as a direct result of the illness or incapacity, an appropriately reduced monthly benefit will be payable by many insurers. This is not the case for all policies.
  • Some insurers offer the services provided by Best Doctors, who offer a second opinion service for individuals who have been diagnosed with a health condition. They pride themselves on employing the very best specialist consultants, so individuals can obtain a valuable second opinion about their medical situation.
Income Protection
Aimee Scott

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