Income Protection Plan UK

An income protection plan aims to provide you with an income which replaces your regular income from work should you not be able to go to work because of a form of illness, or you suffer an injury in an accident. You pay some premiums, which are affected by certain criteria, and then you receive cover for the period you are out of work, sometimes even up to retirement age, when you would normally have ceased employment and be receiving pension payments.

The payouts that you receive are regular, not a lump sum, but they do not cover the whole of your income. The maximum benefit normally payable is at most 80% of your income but normally about 50% of your previous income, depending on the insurance company. To this may or not be added the state incapacity benefit and maybe the statutory sickpay from your employer. The reason why the insurance company may try to make sure that you do not receive your former pay is that they need to provide you with some sort of financial incentive to try and return to work. Paying you a full income will not give you that incentive.

Your premiums are affected by your age, the state of your health, but also the length of your waiting or "deferred" period, which is the time between you becoming ill or sustaining an injury and the first day that you claim payment for. Insurers offer deferred periods of around 1 month, 3 months, 6 months or even a year. This gives the insurer a chance to avoid payouts, as they will hope that the time in which you can't work is shorter than the deferment period.

Once you start receiving payments, they last until you have returned to normal work at a certain income level (returning to work for half the pay due to the limitations of your income does not count as the end of your payout period with most insurers). Or they may last up to an agreed term expiry (which may be 24 months or 10 years) or up to retirement. Whilst you are still paying your premiums during your terms you can make as many claims as you need to, so if you suffer from many separate illnesses you are still covered.

There are different levels of cover to go with different benefits, and the nature of these levels affects the premiums. Level benefit sees the cover level stay the same throughout the claim period, meaning that your cover decreases in real terms. Growth benefit sees your benefits increase by an agreed amount per annum. Optional increasing benefit lets the policyholder increase benefit by a certain percentage after each regular period, and index-linked benefit increases the benefits with inflation.

 

 

 

 

 

 

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