How and where to buy income protection insurance

Income protection insurance is important for many people, to give them peace of mind if they couldn’t work due to sickness or illness. It’s important to get a policy that will meet your needs in case you need to claim and getting expert help from an adviser is a useful starting place.

How much does it cost?

Not sure what something means? Have a look at our Protection insurance glossaryopens in new window.

How much you pay for income protection insurance each month, depends on the level of cover you want (i.e. the amount you want paid out if you are unable to work), the type of policy you take out and the likelihood that you will find yourself unable to work.

Factors which will affect your monthly payments (premiums), include:

You might find it useful to speak to a financial adviser to help you make the right choice.

  • Age
  • The waiting period you choose
  • Whether you smoke or have previously smoked
  • Health (your current health, your weight, your family medical history)
  • Job (some occupations carry a higher risk than others and may mean you have to pay more)

The amount of cover you need will depend on:

According to the ABI, the average payout in 2013 for individual income protection policies was £11,500 over the course of four years, to support those unable to work.

  • Take home pay
  • Debts
  • Mortgage/rent
  • Number of dependants

The state might provide you or your family with some financial support, but the amount is likely to be less than you expect.

How much cover do I need?

Follow these three steps to work out how much cover you need.

Step 1: First add up:

  • Your debts: your mortgage and other debts, including credit card debts or personal loans.
  • Expenses you wish to cover: your monthly spend and any other costs, such as childcare, future holidays, or other large cost you will pay out.

Step 2: Find out what kind of cover you already have

For example, if you’re employed, your benefits package may include a certain level of sick pay. You should be able to find this out in your contract or by speaking to the HR department. If you’re self-employed it’s unlikely that you have a similar scheme in place.

You can find out more in What financial protection might you already have?

Step 3: Calculate the cover you need

When you have these two figures, take away the benefits or cover you already have from the total amount you need – the result is the amount of income protection insurance cover you might need.

Income protection insurance example

Add up

John (42) and Judith (39) have a joint household income of £41,000 per year. They have an outstanding mortgage of £213,000 and took out a £5,000 loan to purchase a car. Their basic monthly outgoings are £1,000 (£12,000 per year).

What you already have

Through his employer, John has a company sick pay scheme which ensures he will receive a full salary for his first three months. He will then receive half his salary for the next three months and, if he remains unable to work, he will not get anything else from his employer. This adds up to £7,200. Judith is self-employed and does not have a similar benefit.

Calculate what you need

They decide that they need enough income protection insurance to help pay off the mortgage (£400 per month), car (£150 per month) and living costs (£1,000 per month). John’s company sick pay scheme will cover some costs for the first six months. They also have Judith’s salary of £1,150 per month. They pick an income protection policy which starts paying out after six months and covers 65% of John’s take home salary (£1,040 per month).

Should you get an inflation linked policy?

You don’t need your policy to be inflation linked if you just want to cover your mortgage. If you want to protect your current lifestyle then it should be linked to inflation.

What happens to my policy if I die?

Income protection insurance won’t pay out if you die, so if you have dependants it might make sense for you to take out a life insurance policy. You can find out more in Do you need life insurance?

Where to get quotes

The best way to make sure you get what you need is to seek advice from an independent financial adviser or specialist broker. These might charge a fee for their services – or they may be paid in commission by insurance companies.

Specialist advisers and brokers can:

  • Narrow down the income protection policies on the market to those which best suit your needs
  • Identify which policy is really right for you
  • Help you decide how much cover you need, and
  • Recommend how long the policy should last

There are also specialist brokers and insurers for people who have been declined insurance – perhaps because of a medical condition or because you have a job that isn’t covered by standard policies.

Be honest about your medical history

97% of all individual claims were paid out in 2013 - an average of £8.4m a day for individual life, critical illness and income protection insurance claims.

It’s vital that you take care to answer all the questions honestly and give the insurer the full facts to the best of your knowledge. It could be the difference between getting a payout and getting nothing.

If you need to claim, the insurer may check your medical history and if they find something important that you didn’t tell them, they could refuse your claim.

Use our FAQ guide, which covers the basic questions that you might want to ask an adviser, or the questions they will ask you.

Buying a policy

Read the small print

Read the terms and conditions so you know exactly what is and isn’t covered. If there are any areas you don’t understand, ask the insurance provider or financial adviser right away.

When you complete the application:

  • Take your time
  • Read the questions carefully
  • Ask for advice on anything you don’t understand
  • Keep a copy of your application form to refer back to
  • If you apply online you’ll get a copy of your answers – keep this, and
  • If you’ve forgotten anything, get in touch with your insurer

Use our protection insurance jargon buster to help you make sense of the jargon that’s often used.

Changing your mind

The rule for income protection is that you can cancel your policy any time in the first 30 days and get a refund of any premiums you’ve paid.

Switching products/providers

If you switch to another provider or change policy and keep the same provider, you might find yourself paying more. This is because you’ll be older than you were when you bought the first policy. If you have been ill, the insurer will take that into account when calculating your monthly payments.

Keeping your cover up to date

You should frequently review your income protection policy to make sure your monthly payments are competitively priced and that you still have the right amount of cover. Reasons to increase your level of cover include:

  • You’ve had a child
  • Your partner has stopped working
  • You’ve taken out a new mortgage

On the other hand, if you get a new job and it comes with a more generous sick pay policy, you may be able to decrease your level of cover.

Find out more in Income protection insurance – choosing a policy.

Do you need life insurance? This product will provide some financial support to your dependants if you die.

Do you need payment protection insurance? Also known as PPI, this product will help you keep making payments if you can’t work due to an illness, injury or if you’re made redundant.

Do you need short term income protection? This solution provides short term cover to help you pay for essential outgoings if you find yourself unable to work.

Do you need critical illness insurance? This type of policy will provide you with a tax-free ‘lump sum’ if you’re diagnosed with a serious illness covered by your policy.