Understanding protection insurance Our view

Income protection covers every eventuality, not just specific debts

Income protection (IP) is the one form of protection that most of us need, but hardly anyone has. The financial services industry must shoulder most of the responsibility for this, because when you buy a mortgage or loan, you'll often come out with a protection policy tucked under your arm. The problem is it’s usually the wrong policy.

Which? says

Financial providers and advisers have taken the soft option for too long and have chosen the easier sales of critical illness and payment protection, rather than take the time and trouble to make sure their customers are properly protected. At Which? we believe this must change.

Indeed, sales of critical illness insurance still far outstrip sales of income protection. And yet only about half of the people off work for six months or more due to accident or sickness would receive a pay out from a critical illness policy. This is because the main causes of long-term absence - stress and back pain - aren't covered by this type of insurance.

However, Which? believes that the income protection market must change too. Products should be simplified and the underwriting process needs to be more straightforward. At the very least, insurers should try and categorise occupations the same way. 

We also feel you should be able to receive a higher level of income than £85 a week without state benefits being reduced.

Measures you can take

If you need IP, make sure you get the real deal and not an impostor. Products like payment protection and mortgage payment protection sound similar, but they only cover a specific debt – like your mortgage payments or loan repayments – and they won't give you any income to pay other essentials such as bills. 

They also pay out for a limited period – usually 12 months – unlike IP, which pays out until you can get back to work or until the end of the policy term, whichever is longer. Despite the limited cover, these other policies often cost about the same as IP.

IP (unlike PPI) will always be based on your personal circumstances and in particular, your medical history. That’s why far more IP claims are paid out compared to PPI claims (Pioneer has recently announced it pays 96% of its IP claims). 

You can spot whether it’s a genuine IP policy, as you'll have to complete an application form which asks for details about your health, age, occupation, etc. Always take full advice when buying protection insurance and try to see an independent financial adviser who specialises in protection insurance.