Did you know you have more chance of being off work for six months with a long-term illness than you have of either dying or suffering a serious illness? Yet despite this fact, fewer than 10% of UK workers have an income protection policy. Income protection is designed to replace part of your income if you are unable to work because of an accident or illness and will allow you to maintain your lifestyle and meet your monthly outgoings.
Here are our top tips to follow when searching for the right income protection policy to meet your budget.
1) Look for long term cover
We always advise people to start their income protection search by looking for long term policies which provide cover up to retirement age. This means that if you protect your income to the age of 65 and became ill at 30 your policy could potentially pay out for 35 years if you were unable to return to work.
Short term policies like Accident, Sickness and Unemployment (ASU) insurance often have lower premiums but they will only pay out for a maximum of 12 months regardless of how long you are off work.
2) Choose ‘own occupation’
When taking out an income protection policy you will need to be aware of the definitions on which the plan would pay out.
‘Own occupation’ is the best definition to have as this means the policy will pay out if you are unable to do your own job. Some policies have ‘any occupation’ definitions, which means you would not be paid if you could do anything that can be classed as work, which is a much more restrictive definition.
3) Increase your waiting period
The length of time between you being unable to work and the benefit being paid is called the ‘deferred period’, and the length of this will affect your premiums. You can usually choose a period of 4, 13, 26 or 52 weeks, but make your choice carefully.
A policy with a 13 week period will typically charge lower premiums than one with a four week wait because the insurance company’s costs are lower. It is best to find out how much sick pay you get from your employer before selecting your deferral period.
4) Only cover what you need
When taking out income protection a key decision will be the amount of money you want your policy to pay. Most income protection policies will cover up to 70% of your income tax free, but the more cover you require the more expensive your premiums will be.
When deciding on the level of cover take into account all the monthly outgoings you need to meet, such as your mortgage, household bills and council tax. Covering just these will lower your premium.
5) Compare the market
Because there are so many different income protection plans on the market it can be difficult to know where to start looking, and by visiting just a few of the insurers you may not be getting the right cover at the best price.
An easier way to find a policy is to compare income protection quotes online. By comparing the leading UK providers side by side you will be able to find a plan that suits your needs and your budget.
6) Consider the European Gender Directive
From 21st December 2012, insurers will be unable to charge different premiums based on gender. Since healthy men usually pay less for income protection than healthy women, experts say men could end up paying 20% more on their premiums.
Consequently, if you are considering taking out cover, topping-up or amending your current policy, it is best to do so now and take advantage while rates are still low. Some insurers may not honour prices quoted before 21 December, so invest in a policy now to be on the safe side.
Find out more about ActiveQuote
ActiveQuote.com is the UK’s leading comparison site for income protection, health insurance and life insurance. To compare quotes visit www.activequote.com or call us on 0800 862 0373.