Use these simple tables to check what features are a ‘must have’, a ‘should have’ or a ‘could have’ when comparing income protection policies. This is a complicated product to research and buy, so to be safe, get professional advice from an independent financial adviser or insurance broker.
‘Must have’ features
| ‘Must have’ features | A good policy will give |
|---|---|
| ‘Own occupation’ definition – the policy pays out if you are unable to do your own job. | Make sure your policy offers ‘own occupation’ cover for your job. Be aware that insurance companies group jobs into classes based on the risk of being unable to work. If you are in a class 3 or 4 occupation some insurers may offer you an alternative, less generous definition of disability. If you are in a class 5, 6 or 7 occupation there are very few providers who will offer you ‘own occupation’ cover. |
| Guaranteed premium rates – the premiums agreed when you start the policy will apply throughout the term of the policy and are not subject to review (unless you change the term of the policy or the benefits). | A choice between guaranteed premiums and reviewable premiums. |
| Establishing the benefit (financial underwriting) at the beginning of the policy – in order to establish the amount of benefit your policy will pay, you need to provide evidence of earnings and any other sources of income. Policies which allow this financial underwriting when you take out the plan give greater certainty as to what you might get back. | A choice of when the financial underwriting can be done, either when you take out the plan or when you make a claim. |
| Waiver of premium – ensures that if you are unable to work due to sickness or disability your premiums continue to be paid on your behalf. | Waiver of premium should be included automatically. The definition of disability should be ‘own occupation’, meaning your premiums will be paid if you are unable to do your own job rather than any job. Being unable to work as a result of redundancy or unemployment is not covered (but some insurance companies will allow you to add it). |
| Benefit flexibility – the option to increase or decrease the amount of the benefit (the amount your policy will pay out) during the course of the policy. | You should be allowed to both increase and decrease the benefit amount as your circumstances dictate. If you increase the benefit, you may have to provide additional medical evidence. |
| Indexation – the facility to have your cover increase each year in line with an index (such as the retail price index) or a fixed percentage, so your benefit maintains its buying power. | An option to add indexation at any point during the contract. If you decline to have your benefits increased a certain number of times the option is usually discontinued. |
‘Should have’ features
| ‘Should have’ features | A good policy will give |
|---|---|
| Retirement age – the age at which the policy ends. This needs to tie in with your retirement date or when you start to receive your pension. |
A wide range of retirement ages should be included – ranging up to 70 to cater for the majority of circumstances. |
| Deferred period – is the time lag between when you make a claim and when the first benefit is paid. |
A wide range of deferred periods should be offered – to enable you to select one that dovetails in with your employer’s sick pay scheme or when your savings will run out. Where sick pay is paid at two levels, two deferred periods in one plan may be needed. Note that no benefit is paid within the deferred period although waiver of premium (see above) can cut in early. |
| Deferred period flexibility – is the option to increase or decrease the deferred period during the course of the policy. |
You should be allowed to either increase or decrease the deferred period as your circumstances dictate. If you decrease the deferred period, you may have to provide additional medical evidence. |
| Policy term flexibility – is the option to increase or decrease the policy term during the course of the policy. |
You should be allowed to either increase or decrease the policy term as your circumstances dictate. If you increase the policy term, you may have to provide additional medical evidence. |
| Guaranteed insurability options – allows you to increase your cover at certain times without needing further medical evidence. |
You should have the option to increase cover at set intervals or when life changing events happen such as getting married, having a baby, taking on a bigger mortgage or a new job or promotion. Note that the increase is subject to a maximum; any increases over the maximum may not be allowed or you may have to provide additional medical evidence. |
‘Could have’ features
| ‘Could have’ features | A good policy will give |
|---|---|
| Claims support services – provide help and support in the event of a claim to help you make a speedy recovery and return to work as soon as possible. |
Claims support services should be included as standard including helplines and information about your medical condition. Claims support services do not usually pay for medical treatments. |
| Relapse benefit – if, following a claim, you return to work but then shortly afterwards fall ill with the same complaint, the insurance company will class this as a continuation of the first claim and pay the benefit straight away. |
Relapse benefit should be offered as standard within a relapse period of 12 months or more. |
| Day one cover – policies for the self employed (where there is no employer sick pay scheme) may offer cover from day one of a claim. |
Day one cover should be offered as an option. |
| Health and wellbeing services – a health assessment and programme of healthy living activities to improve health and wellbeing of policyholders. |
A health and wellbeing programme should be offered as standard and should offer tangible rewards (eg reduced premiums) for those engaging with the programme. |
| Hospitalisation benefit – is a cash payment under the policy for each night that the policyholder spends in hospital. |
£200 per night for each night spent in hospital. Note that the first week of hospitalisation typically does not count. |
| Carer benefit – if you have to give up work in order to care for a sick or disabled partner or dependent child, the policy pays a benefit. |
A full income protection benefit should be paid if you need to care for a dependant. |
| Houseperson’s cover – This is cover for people not in employment. |
A maximum benefit of up to £20,000 per year. But note that an ‘activities of daily living’ (ADL) test is used to trigger a claim rather than whether you can work. |
| Career break – is the ability to suspend cover and premiums for a period of time to take account of periods when you’re not working. |
You should be able to suspend premiums (and cover) but allow reinstatement within 24 months with no further underwriting. Note that there is no cover during a career break. |
Things to watch out for
| Things to watch out for | A good policy will give |
|---|---|
| Other income – if you have other continuing income or payments from other insurances, these may reduce the benefit you receive from your policy in the event of a claim. |
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| Benefits in kind from your employer (P11D benefits) – in calculating total income, the policy takes into account benefits in kind, such as a car allowance, not just paid income. |
The payout should be based on your total package. |
| Dividend income – in calculating total income, the policy takes into account dividend receipts, not just earned income. |
The payout should be based on your total package (including dividend income) |
| Houseperson’s cover/Career break – is the ability to suspend cover and premiums for a period of time to take account of periods when you’re not working. Many providers do not offer a true career break but allow the policyholder to move to a houseperson’s cover (see above) on a temporary basis. |
You should be able to take a genuine career break where it is required. If houseperson’s cover is used a policy should reduce the premiums to reflect the lower level of cover and the less generous definition of disability. |
Further information
The tables above set out what to look for, but if you want to know whether you need income protection insurance, or you want to know more about levels of cover, follow the links below:
This article is provided by the Money Advice Service.
