Income Protection

The deferred period is how long you must be off work before the policy starts paying. Common choices are four, eight, thirteen, twenty six or fifty two weeks. The longer you wait, the lower the premium, and the gap between four weeks and twenty six weeks is substantial.

Choose it by looking at what already supports you. If your employer pays six months of full sick pay, a policy paying from week four is largely wasted, and twenty six weeks picks up exactly where the employer stops. If you are self employed, or your contract offers statutory sick pay and nothing else, a short deferred period matters far more. Check the wording of your contract rather than what you assume, because sick pay is often service related.

This is the most important clause in the contract. It decides what counts as being unable to work.

Own occupation

You are assessed against your own job. A surgeon who develops a tremor that stops him operating can claim, even though he could teach or take a desk role. This is the definition to hold out for, and most good quality plans offer it.

Suited occupation

You can claim only if you cannot do your own job or any other suited to your training, experience or education. It sounds close to own occupation and is meaningfully weaker.

Any occupation and activities of daily work

Any occupation means being unable to do any paid work at all, a very high bar. Activities of daily work assesses you against tasks such as walking, bending and lifting. Both are cheaper for a reason, and an unusually low quotation is often explained here.

A short term or budget plan pays for a limited period per claim, usually one, two or five years, then stops even if you are still unwell. A full term plan pays until you recover, until you die, or until the end of the term, which is normally set to your expected retirement age.

Short term plans cost much less and are far better than nothing, since most claims are short. What they leave exposed is the long claim, the one that would otherwise run for fifteen years and is the reason the cover exists. On a tight budget, a full term plan with a longer deferred period is often the better trade.

Cover normally allows repeat claims. Recover, go back to work, and you can claim again later, with the deferred period restarting. Many plans include a linked claims window, so a relapse soon after returning is treated as a continuation.

Insurers will not let you cover your whole salary, for obvious reasons. The usual ceiling is between fifty and sixty five per cent of gross earnings, sometimes tiered. Benefits are normally paid free of income tax on a personal plan, which is why the capped figure often lands close to your usual take home pay.

Two things to raise with us. Some contracts reduce the benefit by state benefits or by payments from another policy, and some ignore them, so check which you are buying. And if your income has changed since you applied, tell the insurer, because the payment at claim is generally based on your earnings before the illness rather than the figure on the original form. State support is not a substitute either, being mostly means tested or paid at a modest flat rate.

If you are self employed there is no sick pay behind you, so the deferred period and the definition of incapacity carry the whole weight. Insurers will look at your accounts, and it is worth knowing how they treat a director drawing a mix of salary and dividends.

If you are employed, check whether your employer already provides group income protection. Where it exists it may be generous, and it usually stops the day you leave. A personal policy travels with you between jobs.

Premiums may be guaranteed, meaning fixed at outset, or reviewable, meaning the insurer can reassess them at set intervals. A reviewable plan starts cheaper and can become expensive later. Decide that deliberately rather than by accident.