The “best income protection insurance” for you will depend on your personal circumstances, but in this guide we give you an overview of the leading companies and their policies.
Best Income Protection Insurance Policies 2022
The best income protection insurance policies in 2022 are:
- AIG life – YourLife plan income protection
- Aviva – Income protection options
- British Friendly Society – Protect
- L&G – income protection fee
- Liverpool Victoria – Flexible Protection and Mortgage
- Nationwide – income protection allowance
- Royal London – personal menu plan
- The Exeter – Income One Plus
- Vitality – a range of income protection products
- Wesleyan Assurance Society – Personal Income Protection Plan
What is Income Protection Insurance?
Income protection insurance is a policy that will pay out a monthly amount if you are unable to work due to illness, injury or unemployment. The policies are designed to cover your living expenses while you are not working and will continue to pay until you are able to return to work. If you are unable to return to work, it will continue to be paid until you retire or die. It is sometimes called permanent health insurance.
Typically, Income Protection will do the following:
- Cover up to 70% of your gross annual salary
- Payment of only 1 week of illness or injury
- Protect your income until the end of your working life
What does income protection insurance cover?
Income Protection insurance is not limited to a specific list of illnesses and conditions and many insurers have very few standard exclusions. Therefore, it is considered the most comprehensive type of disability coverage currently available.
Income protection insurance is designed to cover anything that medically prevents you from working, including injuries, accidents and periods of sick leave.
The best income protection insurance will cover you in your chosen occupation, meaning you will be able to claim as long as you are unable to do your particular job.
Unemployment insurance
To provide you with comprehensive salary protection, we also recommend that you consider adding unemployment insurance to your policy. This will pay off if you lose your job due to redundancy.
To qualify for unemployment insurance benefits, you must lose your job through no fault of your own. Assuming this is the case, you will be paid for 12, 18 or 24 months, depending on your policy and if you can find a new job, whichever comes first.
Broker tip: buy unemployment insurance separately from income protection coverage
Unemployment insurance is usually a short-term policy and although you can buy income protection insurance at the same time, it will likely be for those shorter terms. We always recommend purchasing two separate policies, so your income protection insurance doesn’t just cover you for the short term.
In another recent guide, we looked at the best life insurance companies.
What is not covered by income protection insurance?
Even the best income protection insurance will not cover certain situations, namely these are:
- Self-harm
- Drug abuse
- Abuse of alcohol
- Travel to a country with an active conflict where the Department of Foreign Affairs has advised against travel or with an active outbreak
What affects income protection insurance costs?
There are a number of factors that will affect the price of your policy, some of which you have control over and some of which you don’t. When you configure your policy, you’ll be able to choose when payments start and what percentage of your monthly gross salary you want covered. In addition, you will have to disclose your age, health status, occupation and whether or not you are a smoker.
Request waiting period
Most insurers will allow you to set a waiting period, sometimes called a grace period, between 4 and 52 weeks. If, for example, you have little savings and are worried about paying your mortgage and other day-to-day expenses if you fall ill, we recommend that you only set the waiting period for a short time, so that the insurance payments start as soon as possible. Of course, the shorter the waiting period, the more expensive the policy will be, and if you can afford to make it a little longer, it can be an effective way to reduce the cost of the policy.
A percentage of your gross monthly income
Another factor that will directly affect the cost of your policy that you have control over is the amount of money you want the policy to pay you if you are unable to work. You can usually claim up to 70% of your gross monthly salary tax-free, but remember, the more you claim, the higher the cost of income protection insurance will be.
Existing health condition
An existing health condition can slightly complicate the conclusion of an income protection policy. When setting up your policy, you will need to declare any medical conditions and you may find that the insurer increases your premium, excludes the condition or offers cover for the condition on standard terms.
It’s critical to be honest and transparent when setting up any insurance policy, especially when dealing with pre-existing medical conditions. It is usually best to speak to an independent specialist if you have health concerns as they will be able to advise you on which insurers are most likely to provide you with cover.
Do I need income protection insurance?
There are a number of reasons why you may choose to take out income protection insurance, some of which include:
- You don’t get much sick pay from your job
- Having financial dependents who rely on your income
- You are self-employed and have no sick pay to fall back on
For more information about whether you may need income protection insurance, use this useful guide from the Citizens Advice Bureau.
Is this the best type of health insurance for me?
With so many health insurance policies to choose from, it can be difficult to know which is right for you. Income protection can be very expensive, mainly due to the fact that it has few exclusions and provides excellent coverage. If the cost of income protection insurance is too high for you, then it may be worth considering another type of policy, such as critical illness insurance. You won’t get the same level of cover as income protection insurance, but it will likely be more affordable.
When should I buy income protection insurance?
The simple answer is when you are young and healthy. As with other types of protection, buying young and when you have little or no health problems is the key to getting reasonable premiums. Unfortunately, this happens when we get a little older and after accumulating numerous liabilities, we realize that we are somewhat exposed and start looking for this type of protection.
Unfortunately, as with health insurance, people often wait until they experience a medical condition that worries them, and by then it’s too late because the insurer will most likely add an exclusion to the policy or deny coverage altogether.
There are several times in your life when you might want to consider purchasing income protection insurance, and these include:
Buying a home is likely to be the most expensive purchase of your life, and it’s also a big responsibility. We commit to paying off the mortgage for most of our working lives, but if you can’t work what happens to the mortgage payments? We often hear from people who have recently moved that they want to change their levels of protection, be it life insurance and/or income protection insurance.
- Job change or promotion
When you change jobs or get a promotion, it’s time to celebrate, but it can also mean you’re a little more at risk than you were before. For example, you may have moved company or signed a new contract that cancels your right to sick leave. Either way, this is a great time to look into Income Protection insurance.
There’s nothing better than being self-employed, with all the freedom and opportunity it provides, but it does come with a fair amount of risk, not least what should happen to your financial obligations if you fall ill. If you’re like the other 5 million self-employed people in the UK, you’re unlikely to get paid if you’re sick or out of work. Therefore, self-employment is an excellent time and reason to take out income protection insurance.
Having a baby shouldn’t be a time to worry, but it can be if you have a significant number of financial obligations to meet each month. A child tends to focus the mind and usually makes people think about what would happen if you couldn’t work. For this reason, it is a very popular time to take out income protection insurance.
How much does income protection insurance cost?
Income Protection Insurance in the UK can cost as little as £10 a month, but most people pay between £50-£80 a month. Short-term policies or those with longer grace periods tend to be more affordable than long-term policies or those with short waiting periods.
Average cost of income protection insurance in the UK:
The average cost of income protection insurance in the UK is £65.
Insurance of income protection for self-employed persons
The most common beneficiaries of income protection insurance are those who are self-employed or freelancers as they usually do not have employee benefits such as sick pay to protect them if they are unwell. Most policies are available to people who are self-employed, contract workers or freelancers.
Being self-employed will not affect the price of your policy, but your profession, along with a number of other factors, will.
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