The best income protection insurance 2016

Digby Bodenham By Digby Bodenham

Income protection insurance covers part of your income if you can’t work because you fall ill, have an accident or are made redundant.

You can compare income protection quotes and features from well-known insurers such as Aviva and LV= using the specialist comparison site Activequote.com.

There are a range of products and features to meet different needs, so it can be tailored for self-employed workers, those looking for a short-term policy or those who want a cheaper product.

Best income protection insurance policies 2016

  • AIG life - YourLife Plan Income Protection
  • Aviva - Income Protection Options
  • British Friendly Society - Protect
  • Connells - Income Protection Cover
  • Friends Life - Protect+ Income Protection Cover
  • Legal & General - Income Protection Benefit
  • LV= - Flexible Protection and Mortgage & Lifestyle Protection Plan
  • Nationwide - Income Protection Benefit
  • Royal London - Personal Menu Plan
  • Skipton Building Society - Income Protection Benefit
  • VitalityLife - A range of Income Protection Cover products
  • Wesleyan Assurance Society - Personal Income Protection Plan (dentist, doctors and nurse plans available)

Find out how much many of these policies cost on Activequote.com.

This guide covers: The best providers | The definition of income protection insurance | How much it costs | Income protection for self-employed people | Do I need income protection? | Accident, sickness and unemployment and short-term policies | Claims data | Income protection insurance and mortgages | Income protection insurance reviews

What is income protection insurance?

Income Protection Insurance

Income protection is an insurance policy that pays out a monthly sum if you are unable to work because of illness, injury or unemployment. It is designed to cover living costs while you are not working and will continue to pay out until you return to work. If you can’t return it will continue to pay out until you retire or die.

Policies tend to pay out about 60% to 70% of your gross (pre-tax) monthly earnings into your bank account and it is tax free.

There are different versions of income protection, such as Accident, Sickness, & Unemployment Insurance, and policies can be tailored to your needs. You can set when it starts paying out after you’re off work, the percentage of your earnings it pays out and the kind of work it covers.

Those options will change how much your premium costs, as will factors such as your age, job, health and whether you smoke.

It is different from controversially miss-sold payment protection insurance (PPI) policies, which only cover debt. Income protection covers a specific loss of income and is paid directly to your bank account to spend in whatever way you need.

Income protection is also different from critical illness cover and life insurance, which offer a one-off lump payment if you develop particular illnesses or if you die.

Income protection will pay out for the length of time you are off work, whether you had a heart attack or were hit by a bus, and allows you to make new claims the next time you cannot work. This means it can be used as a form of unemployment protection in case an unexpected event hits your family income.

There is a wait period or deferred period before you start receiving payments from a policy. Most companies allow you to set this wait period and it can be anything from 4 to 52 weeks.

Which? describes it as: “The one protection policy every working adult in the UK should consider is the very one most of us don't have - income protection.”

Insurance is designed to cover a loss of income for whatever reason, you could be injured while taking part in a hobby like cycling at the weekend or have an accident on the job. Many families find a loss of income can be felt very quickly, a YouGov poll recently found one in three middle class people could not pay an unexpected bill of £500 without resorting to borrowing.

Tailor a policy to your needs using Activequote. You can even speak to an adviser over the phone while you’re buying a policy.

How much does income protection insurance cost?

Activequote’s average income protection insurance premium was £940 a year (£78 a month), as of June 24.

Premiums can start as little as £10 a month, so cover can be cheap. Most people pay about £50 to £80 per month.

Short-term policies tend to be more affordable.

Get an online quote through specialist comparison site Activequote, which lists policies from the best insurers, including AIG, Aviva, Legal & General and Royal London.

There are a number of online income protection insurance calculators that can be used to work out how much cover you need, which can also help give you an idea of what your premium may be.

Income protection for self-employed people

People who are self-employed or freelance often consider income protection insurance because they might not have employee benefits, such as sick pay, that will protect them if something goes wrong.

Most income protection policies are available to people who are self-employed, freelancers and contractors.

Being self-employed shouldn't affect the price of a policy but your profession, along with a number of other factors, will.

Self-employed workers may find it more difficult to make a claim or the process may take a while. It is much easier for someone employed by an organisation to prove they have been made redundant or cannot do their job. That means people who work for themselves could have to provide more evidence to support an income protection claim.

Because of these difficulties and the lack of company benefits it may be worth looking into long-term income protection policies. This is particularly important in relation to accident and sickness cover – if an electrical engineer suffered serious injuries in a motorcycle accident that caused a loss of income for 2 years they wouldn't want to spend 3 months proving a claim for only 6 months' worth of payouts.

Different insurers ask for different forms of proof when you make a claim. Some will only pay out for an unemployment claim if you can show you're on jobseekers allowance and looking for work. If you own your business you could have to provide personal and business account statements to prove a loss of income.

Income protection insurance can be a useful product for self-employed workers but it's always important to speak to an insurer and read the terms and conditions to know what you’re buying.

You can speak to an impartial adviser by using Activequote’s phone service.

Do I need income protection?

Choosing income protection insurance is a very personal decision based on your unique circumstances.

A couple of useful questions to ask yourself are:

  • Could you survive financially if you had no income, and if yes, for how long?
  • How likely are you to experience such circumstances?

If you have a family and a lot of outgoing payments but few savings or parents willing to offer a loan then it may be difficult to get by if you’re out of work, sometimes even if you are receiving sick pay.

Newly qualifies dentists and doctors can be interested in income protection because when they start working for the NHS they’ll have less sick pay than colleagues who have been there for years. The longer they work for the NHS, the more sick pay they’ll get.

Brexit may also cause people to consider income protection. Now that the UK has voted to leave the EU, jobs in financial services or banks could be at risk.

Income protection insurance is used by people in a huge range of professions, from local government officers to care workers and electrical engineers.

Accident, sickness & unemployment insurance and short-term income protection

Insurers use a combination of terms to describe income protection, sometimes identical policies will have different names. The most common policy descriptions are 'income protection insurance', 'accident, sickness & unemployment insurance', or separate 'accident and sickness' and 'unemployment' policies.

The cover provided by these policies is relatively self-explanatory. 'Income protection insurance' can be any combination of accident, sickness or unemployment cover but it often includes all three.

The more risks you cover the more expensive your policy will be.

Short-term income protection works in the same way but the payout period will be shorter and occasionally it won't cover as many serious illnesses as income protection insurance. Different policies will allow you to choose short-term payout periods, typical options include 6 months, 12 months or 18 months.

Activequote splits the policies you can search for into 'income protection insurance', 'redundancy insurance', 'accident and sickness insurance' and 'mortgage protection insurance'. There will be long- and short-term options within these categories.

The 8 best firms for short-term income protection policies

  • Assurity
  • Best Insurance
  • British Insurance Services
  • DMS Security Plans
  • iProtect
  • Keystone Insure
  • Paymentshield
  • Real Protection Ltd

Income protection claims data

There were 14,664 income protection insurance claims in 2015, according to the Association of British Insurers. Of these claims, 13,372 (91.2%) were paid and 1,292 (8.8%) were declined. In total, £131,026,000 was paid out by insurers, making the average claim £9,799.

Individual insurers release data on claim numbers, so it may be worth checking the companies you are considering to make sure they’re in line with the national average.

Aviva says it paid out 1,361 income protection claims in 2015.

Royal London paid 94% of income protection claims last year and the average payout was £7,580.

It also says the three most common claims were musculoskeletal disorder (pain or injuries to ligaments, muscles, nerves, tendons, neck and back. E.g. carpal tunnel syndrome), cancer and mental illness. The average age of its customers making a claim was 43.

Some insurers exclude mental illness, stress and back pain from their income protection policies or make it hard to claim for them, so if you’re concerned about these conditions make sure you know you’re covered for them.

Compare providers’ policies on Activequote.

Income protection insurance and mortgages

Income protection insurance provides a payout based on what you would earn in a month after any company or government benefits such as sick pay. It is paid into your bank account so how you spend it is up to you, which means it can cover mortgage payments or rent.

There are a number of other products that cover mortgage payments specifically. Payment protection insurance (PPI) and mortgage payment protection insurance (MPPI) payout in similar circumstances to income protection but only cover loans and credit agreements such as your mortgage.

Many people have been miss-sold PPI in recent years. It is not needed by everyone, especially if you have sickness pay or are likely to receive a large redundancy payout if you lose your job, and it is not compulsory if you have a mortgage.

However, if you are only worried about mortgage repayments it may be worth looking into a mortgage-specific product because they can be cheaper than income protection insurance.

There’s lots of advice online about mortgage protection from sites such as the government’s Money Advice Service and Money Saving Expert.

Income Protection Insurance Reviews

DMS Security Plans offers ‘short-term income replacement’ for those who are employed and a separate product for those running their own business. Its income protection and replacement products have both been rated 5 stars by an independent financial review service.

Its policies have a range of options so they can be tailored to individual needs.

Its short-term plan for employed individuals include a monthly payout of up to 65% of their gross income up to a maximum of £3,000, and the plans can last 6 or 12 months.

ESMI offers a short-term product called Sick Pay which is rated 1 star out of five by a leading independent review firm.

The policy has three levels: up to £1,000 of monthly cover, which costs £20.38 a month; up to £1,500 of monthly cover, which costs £28.33 a month; and up to £2,000 of monthly cover, which costs £37.80 a month.

iProtect offers 4-star rated short-term income protection insurance that pays up to £1,500 a month or 65% of your gross monthly income if less, for up to 12 months.

It has an online-only application process and you can choose between accident and sickness or accident, sickness and unemployment cover.

Keystone’s short-term income protection insurance is rated 5 stars by an independent financial review company.

It offers a choice of accident and sickness, or unemployment cover.

Its policy includes: a payout of up to £3,000 per month or 90% of your income after tax, a choice of 12 or 18 months’ benefit period, three excess options, no job or industry exclusion and benefits paid directly to you.

Its policy excludes: pre-existing medical conditions, mental health disorders, stress and voluntary redundancy.

Paymentshield offers a range of insurance products including income and mortgage protection. The company as a whole is rated 1.5 out of 5 from 49 reviews on Reviewcentre.com. Its short-term income protection scheme, IncomeShield, is rated 5 stars by an independent financial review firm.

Its income protection insurance includes: cover if you’re self-employed, payout of up to £2,000 a month, you have the option to defer your first 2 months' premium payments, or choose to pay your premiums from the start of your policy for a cheaper monthly premium, 12 or 24 months' benefit period with Accident and Sickness cover.

Its policy excludes: pre-existing medical conditions, self-inflicted injuries, drug or alcohol abuse, back conditions, mental health issues and stress and voluntary redundancy.

Realm Protection offers income protection that pays out for 12 consecutive months if you cannot work. Once you return to work for at least three months you can claim again on the policy. Its product is rate 5 stars by an independent financial review firm.

Its policy accepts self-employed workers; includes accident, sickness and unemployment; and pays out up to 60% of gross income.

Synergy Financial Products Limited offers a range of income protection policies. Its short-term product is rated 2 stars out of 5 by an independent financial review firm.

Its accident, sickness and unemployment cover offers a payout of up to 60% of your normal monthly income, with the maximum level of cover set at £2,000 per month.

Uinsure offers accident, sickness and unemployment cover under its Bill Protector policy, which costs £28.50 a month and includes £500 worth of monthly benefit.

Bill Protector is rated 2 stars out of 5 by an independent financial review firm.

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