Income Protection

Income Protection (IP) is an insurance policy designed to provide individuals with a replacement income if they are unable to work due to illness or injury.

This Cover is particularly valuable for individuals who rely on their income to cover living expenses, as it helps to maintain financial stability during a period of incapacity.

Here are key features of Income Protection:

  • Monthly Income Replacement: If the Policyholder is unable to work due to illness or injury, Income Protection provides a monthly benefit, usually a percentage of their pre-disability income. The standard figure would be 60%, some Providers provide up to 65% and this will sometimes be for an amount of earnings before the percentage insurable drops. This benefit is designed to help cover essential living expenses such as mortgage or rent, bills, and other financial commitments.
  • Long-Term Cover: Income Protection is generally designed to provide long-term cover, potentially until the Policyholder is able to return to work, reaches retirement age, or the policy term expires. There are options for limited period benefit pay-out should budget dictate.
  • Waiting Period (Deferred Period): Policies have a waiting period, also known as the deferred period, which is the amount of time the Policyholder must be off work before the income benefit starts to be paid. Common waiting periods range from 4 weeks to 12 months. If budget dictates we will usually link the deferred period to the structure of a clients sick-pay arrangements from their employer, or their readily available savings.
  • Own Occupation vs. Any Occupation: Some policies define disability based on the Policyholder’s ability to perform their own occupation, while others may require the inability to perform any occupation. Policies that cover the Policyholder’s own occupation tend to be more comprehensive.
  • Premiums: The cost of premiums for Income Protection can vary based on factors such as age, health, occupation, and the level of Cover chosen. Premiums are typically paid monthly.
  • Exclusions: Policies may have exclusions for pre-existing conditions or certain types of injuries or illnesses. We utilise the technology available to us to ensure that we know the best possible terms available to our clients at the pre-sale stage.

In the context of Income Protection insurance, “age-costed” and “guaranteed” refer to the premium structures of the policies. These terms indicate how the premiums are determined over the life of the policy. Here’s an explanation of the key differences between age-costed and guaranteed income protection:


Age-Costed Income Protection

  • Premiums Increase with Age: With age-costed income protection, the premiums are initially lower when you first take out the policy but increase as you get older. The idea is that the cost of providing insurance cover tends to rise as individuals age and are more likely to experience health issues or disabilities.
  • Lower Initial Costs: Age-costed policies may be more affordable in the early years, making them an attractive option for individuals who want to manage their immediate budget concerns. However, it’s important to be aware that the premiums will go up over time.
  • Risk of Higher Costs in the Long Run: While age-costed policies might be more budget-friendly in the short term, the long-term costs can become significant as you age, especially in comparison to guaranteed policies where premiums remain fixed.


Guaranteed Premium Income Protection

  • Fixed Premiums: With guaranteed income protection, the premiums are fixed at the time you purchase the policy and typically remain the same throughout the life of the policy. This provides more stability and predictability in terms of budgeting for insurance costs.
  • Higher Initial Costs: Guaranteed policies often have higher initial premiums compared to age-costed policies. However, the advantage is that these premiums stay constant, providing cost certainty and potentially saving money in the long run, especially as you age.
  • Long-Term Cost Control: For individuals who prefer the peace of mind of knowing that their premiums won’t increase with age, a guaranteed income protection policy may be a preferred option.

When choosing between age-costed and guaranteed income protection, it’s important to consider your current budget, long-term financial goals, and your comfort level with potential premium increases.

Income Protection is especially valuable for self-employed individuals or those who do not have sick pay provided by their employer. It provides a financial safety net to help maintain a reasonable standard of living during periods of illness or injury when regular income is disrupted.

How can we help?

Income Protection can underpin all other forms of financial advice, so it’s invaluable to discuss your unique circumstances with one of our specialist advisers to ensure that you get the best cover available within your budget.

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