The main objective of an income protection policy is to replace earnings lost through illness or disability without reducing the insured’s financial incentive to return to work (otherwise the policyholder would simply be content to draw benefits for the rest of the term).
All income protection policies therefore stipulate a maximum income benefit limit. Typically, this is in the region of 60% – 75% of the average monthly net earnings of the insured in the year prior to disablement. Benefits from other income protection policies will usually be taken into account, and it is common for State incapacity benefit to be taken into account in calculating the benefit limit.
Under an Income Protection Plan an income benefit would be paid to you if you were unable to work because of disability caused by sickness or accident. The benefit is paid, basically, as compensation for loss of earnings.
The benefit will normally start at the end of an initial waiting (or deferred) period, which is normally 4, 13, 26 or 52 weeks long and is payable until you either return to work, the benefit period ends (with limited benefit plans (often 2-years)), die or the policy term expires. The policy term is normally linked to your expected statutory retirement age.
What does the insurance type cover me for?
| Income protection insurance | |
| Type of claim Payment | A weekly or monthly payment. (Average claim is about 5 years). |
| When would l make a claim? | When the person insured is unable to work due to an illness or an accident. It’s usually paid after an initial waiting (deferred) period |
| Common reasons for claims being paid | Being unable to work due to suffering with cancer, bad back, mental health issues (stress / anxiety) and accidents. |
| Examples of why a claim could be declined | A customer saying they’re not well enough to work but their GP disagrees |
| Can l make multiple claims? | Yes until the policy term ends |
| Policy length (time you’re covered for) | The policy ends when the policy term finishes |
| How the claim payment could be used | To allow you to continue to pay monthly bills; such as; a mortgage, rent, car insurance and utility bills |
