INCOME PROTECTION INSURANCE

What is income protection insurance (IPI)?

The worry of missing mortgage payments which could ultimately lead to repossession is a real concern for many buyers, irrespective of where they are on the property ladder. As a result, MPPI is a popular product that can effective in protecting your home or investment property.

Despite history resulting in the mis-selling of payment protection insurance (PPI) based policies, FCA guidelines are now more strict to ensure before committing, an assessment of whether the policy is right for you is undertaken.

Policy key features:

  • Most insurers do not require a medical questionnaire.
  • Benefit is paid after a deferred period, usually 28-30 days, however this can be increased with some insurers up to 90 days to reduce premiums.
  • The maximum period across most policies is 2 years of monthly payments.
  • The policy is reviewable on an annual basis, or if circumstances under which the original policy was taken out change.

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Types of IPI available

Accident and sickness    
Should you suffer a serious accident or become ill, this policy aims to pay out a regular income if you are unable to work. This policy could be used in conjunction with Statutory Sick Pay (SSP) and any sickness payments made by your employer in an attempt to support your family’s current financial commitments.
Accident, Sickness and Unemployment
In addition to accident and sickness, this policy can help support you while searching for new career roles if your employer has made you involuntary redundant. Some policies may not include coverage in certain situations where you have opted to take redundancy or you decide to resign from your current role.
Mortgage Payment Protection Insurance    

This insurance product covers your mortgage payments for a period of up to two years if unable to work due to accident or illness. It is also possible to cover based on redundancy up to £2000 a month, or around 65% of your monthly income, whichever is lower.

Benefits of insuring through us

Hassle free

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Wide product choice

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Valuable insights

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Claim settlements

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Tailored policies

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Risk assessment

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Some key things to consider

Short or long-term cover

It is worth having an understanding of the circumstances you are trying to protect against. Short-term policies exist without the specific need to cover a debt and can be used to boost regular income alongside any other sickness payments you may be in receipt of.

Longer term insurance can pay out an income until deemed fit and healthy to return to work, or until the end of the policy term whichever is sooner. However they will not provide cover if you are made unemployed or redundant. There are two categories of these policies – own occupation and working tasks.

'Top up' requirements

You may already have an employee benefit scheme in place that provides some income when off work due to illness or injury. However, this may not be enough in order to sustain your family’s standard of living.

Therefore obtaining a policy that bridges the gap between what is received from the policy and regular expenditure can be an affordable way of ensuring your family’s needs are met without needing to be reduced in times of unfortunate illness.

Deferred period

Put simply, this is the amount of time you need to be out of work before any payments are made by the insurer. It is crucial to have some available funds accessible in order to pay any expenses incurred during this period. The deferred period varies significantly between different insurers and policies.

If you are looking for a low-cost option, extending the deferred period can be a way of reducing monthly premiums for the same level of coverage. This is because to the insurer you are seen as a lower risk as it takes longer to be eligible to claim against the policy.

Difference between IPI and CIC

It is common for people to be confused about the differences between income protection insurance (IPI) and critical illness cover (CIC). While both these types of insurance policies have some similarities, there are also differences which will affect what you can claim for and other conditions about any benefits received.

Both provide protection against illness with tax free payments* and can be used in any way without limitation. Exclusions typically include illnesses arising from substance abuse such as drugs and alcohol along with any pre-existing condition at the time the policy is being applied for. This is because it presents a higher risk to the insurer.

Many people commonly get confused between critical illness cover and income protection insurance, due to the similarities they share in some cases. The key difference between these policies is critical illness cover provides a lump sum amount on diagnosis of a serious illness or injury. Income protection insurance provides a monthly income should be unable to work for health reasons.

Ways to reduce monthly premiums

  • Avoid over-insuring by setting exclusions from activities you are not involved in that may be included in the policy currently.
  • Making property upgrades that improve the safety and security of the property. This will reduce the risk to any insurer.
  • Increase the amount of excess you need to pay if you need to claim. This is a method known as risk-sharing.
Income Protection Insurance (IPI)

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Frequently asked questions

How can I claim with income protection insurance?

It varies from policy to policy, but usually the maximum amount you can claim is your net (after tax) monthly earnings, minus the amount of any state benefits you’re eligible for.

This generally works out at around 70% of your gross (pre-tax) monthly earnings and is tax-free.

Another option is to insure a lower percentage of your income, which means your premium should be lower but you’ll receive less in the event of a claim.

Some insurers also offer the option of protecting the value of any employment benefits such as a company car or private health insurance. Such benefits may also be known as benefits in kind, or P11D benefits.

What is a guaranteed policy?

With guaranteed policies, the premium you pay stays the same throughout the policy term unless you increase the cover available. This is generally the most expensive type of policy in the short term, but it could be more cost effective in the long run.

What is a reviewable policy?

Premiums are reviewed regularly and can change due to age or changes to your health. Reviewable policies usually start cheaper than guaranteed policies, but they may end up being more expensive. You can read more about high-risk life insurance in our guide.

What is a deferred period?

A deferred period, also known as a wait period, is the amount of time you have to wait before the insurer starts to pay out. This is usually between four and 52 weeks. There may also be the option to backdate payments to the time you were unable to work from, which is known as a back-to-day-one option.

What is waiver of premium?

Waiver of premium provides a means of insuring your monthly payments in the event that you’re unable to work due to ill health.

Payments are covered either until the end of the policy term, until you’ve reached a specific age, or until you’re able to return to work.

What are the alternatives to income protection?

Consider any sickness and redundancy package you may have through your existing employment, any state benefits† you’d be entitled to and also other protection products you may have in place to protect you and your family, such as critical illness cover and/or life insurance.

Self-insuring is another consideration, whereby you save the money that you would have paid in premiums to build up your own funds.

While everybody needs a rainy-day savings fund, you should be aware that you may need a very significant sum to match the sort of payouts that can be offered by policies like life insurance, critical illness cover and income protection.

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If you have a question, visit our frequently asked questions section. If you cannot find what you are looking for, contact our team for more information.

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