Income protection How to buy

Calculating cover

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While you might not pay medical bills, you'll still have to pay your rent or mortgage

The good thing about income protection is that it's based on your circumstances and can fit around your life. Remember that you’ll also receive some state benefits, so take that into account when calculating cover levels.

The cover level and when it should be paid depends entirely on the other back-ups you may have. For example, if your employer pays your salary for six months, then you’ll need cover to start from the seventh month of sickness. Similarly, if you’re self-employed but have savings you could fall back on for three months, then your cover should start from the fourth month.

Watch your earnings

The amount you get in IP is calculated as a percentage of your earnings. Review your cover at least once a year to ensure you're not over- or under-insured.

If you are employed, cover levels are often worked out from your earnings in the 12 months before you make a claim. If you're self-employed, it's usually an average of your earnings for the last three years. However if your earnings go down after you take out the policy, you could end up paying for more cover than you'll receive.

Don't over-insure

The money paid from your IP policy will be reduced if your income (including employer's sick pay and other insurance policies) takes you over the maximum allowed by the policy.

So, if the policy allows 50% of earnings at most, and your income from all sources comes to 60%, the pay-out you get under your income protection policy will be cut by 10%.

To avoid this, make sure whoever sells you the policy takes all possible income if you were sick into account when looking at how much protection you need.

Own occupation

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Income protection takes on a much greater importance when you're self-employed

Choose a policy that pays out if you can't carry out your 'own occupation' or a job for which you are 'trained and suited'. All our Best Buys offer one of these definitions.

If you aren't working when you take out a policy, or are a carer, then the policy will normally pay out if you can't carry out several activities of daily living such as climbing stairs or walking a certain distance.

Additional benefits

There are some important additional benefits that we think should be included as standard into Income Protection policies for no extra charge. These are:

  • Waiver of premium - which means your premiums are paid for you by your provider during any claim
  • Rehabilitation benefit - where part of the cover will continue to be paid if you can only return to your job on reduced hours and therefore on reduced pay.
  • Proportionate benefit - where part of the cover will continue to be paid if the policyholder is forced to find a job that pays less.

NB: All our Best Buy policies include these additional benefits at no extra cost.

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