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Will an income protection policy actually pay out?

14% of people don't trust that insurers will pay out, but did you know insurers actually paid almost 90% of all income protection claims in 2022! That’s a LOT of money going to individuals who really need it!

Claiming on income protection insurance

Income protection insurance usually covers you if you can’t work, for any reason! So that could be for mental health reasons, it could be for a broken bone, and of course those scary things like cancer. Anything that stops you doing your day job will typically trigger a pay-out from your policy, but as always, do check your insurer’s policy wording in case they take a different approach.

What's not covered on an income protection plan?

As always, it’s a good idea to speak to a financial adviser about products like income protection insurance – let the experts explain exactly what is and isn’t covered by your specific policy! We’ve partnered with the financial advisers at Caspian who can provide free support if you need it.

But just so you know, one of the most common things not covered by insurers is if you lose your job due to redundancy or if you’re fired (sorry, you’re on your own with that one!) Income protection policies are really there to cover illness, injury or accident.

How much will income protection insurance pay out?

You can choose how much cover you want, and every insurer is different, but a policy will typically pay out up to 70% of your salary, and that money is completely free of income tax!!

So say you earn about £30,000 a year and your policy covers 60% of this. That means you’ll usually get paid (60% of £30,000) £18,000 over 12 months (or £1,500 every month, for as long as you need it). Don’t worry, your insurer will do the maths for you, but it’s probably a good idea to check it yourself too so you know what to expect. Don’t know about you, but we think that £18,000 would definitely come in handy if we lost our income!

How long will income protection insurance replace my income?

A policy could pay out for as long as you're unable to work, right up until retirement! So if you’re 25, that policy could pay out for around 40 years. We're not sure any employer would pay sick pay for that long.....

You can also choose for your policy to pay out for shorter lengths of time ie. 2 or 5 years, which will make your cover cheaper. Your financial adviser will be able to help with all of this.

What is an income protection deferred period?

Probably not a question you’ve come across before, but something worth knowing about. It’s all to do with WHEN your income protection policy starts paying out. Some policies do start paying your income as soon as you fall ill, however others will have a waiting period (the technical jargony term – a deferred period). You actually choose this waiting period when you buy a policy – the key thing to know is, the longer your income protection waiting period, the cheaper your insurance will be.

So, say you know your employer would pay you sick pay for 3 months, you won’t actually need your income protection policy to start paying until after 3 months (when your sick pay stops), so you’d probably choose a waiting period of 3 months. Definitely worth speaking to your financial adviser about this to make sure you build the right type of income protection policy for you!

Want to know the best part…? Extra income protection features!

Did you know that you don’t even have to make a claim to get a benefit from your income protection policy! Income protection often come with other benefits built in as standard (that you don’t pay any extra for) - such as virtual GPs, mental health support, and many other health and wellbeing perks.

How to buy income protection insurance?

As we’ve mentioned a few times in this blog, financial advisers really are the experts when it comes to income protection insurance. You may already have one, but if you don’t, you’re likely thinking 'how do I find a financial advisor I can trust?

That’s where we can help! We’ve partnered with Caspian insurance, an expert team of financial advisers who are providing free support on all things income protection insurance!

They have a tool which calculates the cost of income protection insurance for you, and they have a team who can help you build the right type of policy based on your finances and personal circumstances.

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