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What Is Income Protection Insurance?

4 Mins read

If you are a key person within a business, then you may the sole or majority source of income for your family. Day to day, you could be living a comfortable life, with disposable income and the ability to pay for bills and other living expenses. But, life is unexpected and, unfortunately, accidents, illness and injuries happen. If you suddenly find yourself unable to work, then depending on your situation, this can put pressure on your finances. 

Income protection insurance, or IPI, works as a proactive measure which helps lessen the stress should you find yourself in this situation and find yourself unable to work. But, it’s important to know that income protection insurance may not be relevant for every employee’s situation. Let’s look into what exactly income protection insurance is and how it may be a beneficial insurance policy for you. 


How Does Income Protection Insurance Work? 

Income protection insurance is a form of life insurance that is designed to protect employees in the instance that they find themselves with a total or partial disability or need an extended period of time off work due to illness or recovery. During this time, income protection insurance will replace or cover a percentage of your salary whilst you are recovering or look to gain new employment

If you work in a low risk environment and don’t find yourself at significant risk of accidents, then you may not see that there is much need to take out income protection insurance cover. However, jobs which are more adverse to risk, such as trade work, may find that for key employees, income protection insurance may be more relevant. 

If you choose your cover wisely and ensure that it reflects your personal needs, then income protection insurance can be a lifeline should something happen to you. Just with other forms of insurance, such as car and home insurance, the cost of an income protection insurance policy will differ depending on a number of different factors. These can include your job role, the length of time you have worked at the company or been in continuous employment and whether you work full or part time. As well as this, you will also need to disclose some health information, such as whether you smoke, including the use of e-cigarettes and age. 


What Type Of Insurance Premium Do I Need?

There are a few different options when it comes to an income protection insurance premium, including guaranteed, reviewable and age-related policies. 

A guaranteed income protection insurance premium won’t change unless you personally make changes to the policy, which gives you peace of mind about monthly payments. This type of premium can often be the cheapest to run.

The policy cost of a reviewable premium can initially appear attractive, but it can be reviewed after a set duration and is likely to see long-term increases. Age-related premiums often seem cheap to start with but are likely to rise each year, so be sure to find out from the outset what any further charges may be. 

The cost of your income protection insurance policy will also be affected by the occupation outlined in your cover. This is why it is important to make sure you are choosing the right class for your personal needs. Three of the main classes are own occupations, suited occupation and any occupation. If you choose an own occupation policy, this covers you in the event that you can’t carry out your own, specific job. This may be the right choice in terms of policy if your role requires you to be quite active, and an accident leaves you unable to walk. However, this policy may come with the highest premium. 

A suited occupation cover policy will pay out in the event that sickness or an accident means that you can no longer perform a job which matches your skills and/or job experience. Any occupation IPI provides insurance in the event you are unable to work at all, and often this policy is the cheapest. 


What Are The Benefits Of Income Protection Insurance?

Without income protection insurance, there will be other ways in which you can pay your outgoings and bills, such as occupational sick pay or statutory sick pay. But, not all employers will offer a sick pay scheme and, in some instances, the maximum benefits will often not even match a claimant’s full salary. 

Some benefits of an income protection insurance policy include: 

  • Protection for mortgage payments
  • Loan payment protection
  • Continue to pay utility bills, food bills and council tax
  • Peace of mind if you have dependents to look after
  • Maintain your standard of living
  • Get up to 70% of your gross monthly salary paid into your bank account 
  • Avoid having to dip into savings
  • Have an income whilst you are looking for a new job if you take involuntary redundancy 

With income protection insurance, you can also look to combine this with other insurance policies for your business, especially other employee-specific insurance policies, which is another benefit to the premium. 


How To Get An Income Protection Insurance Policy

The best way to ensure that you are getting the right income protection insurance policy is to compare policies from different providers. The cost of insurance premiums is an important consideration to take when you are looking to take out an insurance policy, but when you are searching for insurance policies, this can often feel like a long and drawn-out process. As a business owner, especially, if you are looking for different insurance policies for your business, you may find it overwhelming or of little interest. With so many different insurers available, too, it can make finding the right policy tricky. 

For business insurance, it may be worth seeking the assistance of a dedicated business life insurance broker who is able to best compare the premiums based on the information provided. Most independent insurance brokers have good relationships with large insurance firms from past business, so may be able to get a better deal on your initial quote. As well as this, with a business insurance broker, you don’t need to worry about renewing or making changes to your policies as they will likely monitor as required. If you are unsure about taking out any insurance policies, or aren’t sure which insurance combinations are best, they are best placed to provide advice. 

If you need to make a claim on behalf of an employee or yourself, then they will be best placed to handle the claim for you and send the required documents and provide updates throughout the process. It just helps to keep stress and maintenance to a minimum, allowing you to focus on your business. 


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