Why Income Protection Insurance Is Important

income protection insurance, More than Money

It’s safe to say that Income Protection insurance that gives you a monthly payout of up to 70% of your wages (before tax) if you are unable to work due to illness or injury – is an incredibly useful insurance product to have. But did you know that only 9% of the UK population are currently protected? – and 4 out of 5 of those have a mortgage! In fact, nearly 20% of people asked had never even heard of Income Protection insurance!

Considering today’s current climate, with unemployment figures rising and the country heading into a recession, these figures are shocking.

The threat of Coronavirus affecting people’s jobs did seem to spur some into action though, and online searches for income protection was three times higher in mid-march than it was a month before.

As the Covid outbreak starts to take its toll, people of all ages and in all occupations are starting to feel the strain, having Income Protection is more important than ever….

But Is It Too Late?

No. But some providers might have added some coronavirus-related exclusions such as not accepting claims for self-isolation, not accepting anyone who is currently furloughed, and not accepting anyone who has respiratory conditions for the time being.

Some insurance companies have stopped selling new policies all together, so it might take you a bit more time to find a policy than it would have done in the past, but it’s still very possible to get cover.

It’s  always important that you give the insurer ALL the relevant information when you take out any type of insurance policy, but the pandemic brings a whole new layer to this. At the moment it’s particularly important when you apply for Income Protection that you tell them if you have any travel plans within the first year of your policy; that way they can assess how at risk you might be from coronavirus before they set your premiums.

As with all insurance policies, if you don’t disclose something when you take out your policy that becomes relevant when you try to make a claim, you may not receive a payout. 

How Does Income Protection Work?

You might still be wondering why you actually need Income Protection insurance – you might even be one of the 20% who aren’t sure what it is!

Well..

  • Income Protection pays a percentage of your typical wage if you ever become too ill or injured to work, meaning you’ll be able to continue paying the bills if your income suddenly stops.
  • You can set a ‘deferred’ period so that you start to receive payments once any sick pay you might get from your employer has ended.
  • Income Protection is available to both the employed and the self-employed
  • Some policies allow you to add involuntary unemployment cover to your policy so that you’re also covered if you’re made redundant.

Am I Covered If I Catch Covid-19?

In a word, yes, providing you didn’t already have the virus when you took out the Income Protection insurance. If that’s the case it would be considered a pre-existing condition and won’t be covered.

If you have Income Protection and you are out of work for a while because you have caught Covid-19 after taking out your policy, you’ll be able to make a claim – even if you bought that policy today.

Of course the exact criteria required to receive a payout will depend on the individual insurer, so policies should always be read carefully – (or better yet, let me know exactly what you want your Income Protection policy to cover you for and let me find it for you!)

Luckily, the majority of people who have caught coronavirus have recovered within a few weeks, and most Income Protection policies make you wait a minimum of 30 days before you can make a claim. If that’s the case you’ll probably be covered by SSP (Statutory Sick Pay) – which is now available from day one of being sick rather than day four.

And what about self-isolation?

The Association of British Insurers have said that self-isolation will probably only be covered if you’ve been advised to do so by a medical professional, rather than taken it upon yourself to make that decision.

SSP is now payable to those who are self-isolating, unless they earn less than the required £118 a week, in which case they would have to claim benefits.

What About If I’m Self-Employed?

It’s a common myth that you can’t get Income Protection if you are self-employed. It’s sometimes known as ‘self-employed sick pay insurance’ or ‘income replacement insurance’, and in my opinion is an absolute essential insurance to have if you’re self-employed.

Without it you would have to claim Employment and Support Allowance in order to cover your bills and other outgoings, and £57.90 a week if you are under 25, and £73.10 a week if you’re over, it’s not exactly going to keep you in the lifestyle to which you’ve become accustomed – or stretch far at the supermarket for that matter!

Self-employed Income Protection Insurance would pay out between 50% and 70% of your gross income.

Will I Have To Wait To Get My Money?

Again, yes, but that’s one thing we can’t really blame the pandemic for. With the majority of Income Protection policies you have to wait a set length of time between stopping work and making a claim. During this ‘deferred period’, as I mentioned earlier, you’ll either be receiving sick pay from your employer, receiving SSP or some other type of government benefit, or living off any savings.

The deferred period can be anything from 1 to 12 months for long-term policies, or 1 to 4 weeks for short-term ones – the longer the deferred period, the lower the premiums will be.

What If I’m Made Redundant Because Of Covid-19?

If your Income protection policy includes redundancy cover you may well be able to claim if you lose your job or your business closes as a direct result of coronavirus.

But there are some restrictions:

  • There is a no-claims period; that is the time between you taking out your policy to when you are eligible for any benefits. This is normally 6 months.
  • During this no-claims period your employer can’t let you know that redundancies might occur or your cover is void.
  • There’s also a waiting period from when you lose your job to when you can claim benefits – usually 28 days.

This means that if you bought Income Protection insurance with redundancy cover today you would have to be employed for at least 6 months before your policy is worth anything. It also means that your boss can’t be hanging around the water cooler dropping hints about who’s next out the door! If you were made redundant after 6 months, you would have to wait 28 days before you could claim any redundancy benefits.

If you have any other questions about how coronavirus has impacted Income Protection, or you want help finding the ideal policy to suit your needs, please get in touch.

Sam

I’m More Than Money’s Income Protection and Business Protection Insurance expert, I started my career in finance 8 years ago. I’ve gone from advising on insurance in my home county of Kent, to working in the big city of London. I started More Than Money with my Dad and Brother, to get away from the 'sales environment'. When you're a qualified Adviser, the quality of your advice has to come first, not a 'sale on the board'. I thought, if I cant find that environment elsewhere, well i'll create it myself.

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