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Activities of daily living definition

Your income protection policy will only pay out if you meet your insurer’s definition of incapacity – in other words: their definition of you being unable to work. If your policy has activities of daily living definition, they’ll assess your claim based on your inability to do everyday things that aren't necessarily related to your job – like walking, lifting, using stairs, or getting in and out of a car.

Age-banded (or age-costed) premiums

The monthly premiums you pay to be insured with income protection can either be age-banded or level. If yours are age-banded, the amount you pay each month goes up with age – to reflect your increased risk of illness. Premiums usually start out cheaper than a level policy, in which premiums always stay the same, but can end up being more expensive. Age-banded premiums might be recommended to you if you’ve got a particular health condition or occupation.

Any occupation definition

Your income protection policy will only pay out if you meet your insurer’s definition of incapacity – in other words: their definition of you being unable to work. If your policy has any occupation definition, they’ll assess your claim based on your inability to do not just your own job, but any job.

Broker

A broker acts as an intermediary between buyer and seller. In the insurance world, this means between the consumer and the insurer. It could be an individual or a company. At Anorak, we’re an independent online broker for life insurance, income protection and critical illness cover. We have access to the whole market of insurers – and we work for you, not them.

Claim

An insurance ‘claim’ is the process of requesting payment from your insurance provider because the event that you’re insured for has happened. In the case of income protection, the claim would be made by you if you’ve been signed off work for medical reasons.

Cover

Having ‘cover’ in place means an insurer has taken on the risk of something happening to you, and that they’ll pay out if it does. Your cover ‘amount’, is how much you’re covered for – i.e. how much your insurer would pay out if the event happens. For income protection, the event is you being unable to work for any medical reason.

Critical illness cover

Critical illness cover is an insurance policy that pays out a lump sum if you’re diagnosed with one of the illnesses or conditions listed in your policy. It’s often bought at the same time as life insurance, since many insurers offer combined products – the idea being that you’re covered for both death and illness with one policy.

Deferred period

All income protection policies come with a deferred period (sometimes called a waiting period). This is how long you wait between becoming too ill to work and starting to receive your monthly income protection payments. Typical deferred periods are: 1, 4, 8, 12, 26 or 52 weeks. The deferred period you choose will affect the price of your policy: shorter deferred periods have higher monthly premiums; and longer deferred periods have lower monthly premiums.

Employee benefits

Many employers offer employee benefits to their employees. This usually means benefits or compensation beyond your normal salary and could include things like employer sick pay or death in service cover.

Employer sick pay

Many employers will include employer sick pay (sometimes called ‘company’ or ‘occupational’ sick pay) in your employment contract. The terms can vary, but it usually means you’ll be paid your normal wages if you’re off sick, up to a maximum number of weeks, followed by a reduced proportion of your wages, again up to maximum number of weeks.

Many employers will automatically pay sick pay for up to a week of you being off sick, but beyond that point will require you to be signed off work by a GP. If you still can’t work after your employer sick pay runs out, you’ll be entitled to statutory sick pay for a maximum of 28 weeks.

Exclusions

Insurance policies can come with ‘exclusions’ – which means circumstances in which they won’t pay out. Some exclusions always come with the policy and apply to anyone who takes it out; others may be added by the insurer based on your particular circumstances at the time of taking out the policy (e.g. your health history, job or lifestyle).

Existing medical conditions

An existing (or pre-existing) medical condition is one that you already have at the time of taking out an insurance policy. This is important in the case of income protection because having an existing medical condition could affect how much of a risk you are to insure. An insurer may charge a higher premium, add an exclusion, or refuse your application based on you having an existing medical condition, depending what it is and how severe it is. You will be covered for an existing medical condition unless your insurer specifically excludes it.

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Fracture cover

Some income protection policies offer fracture cover as an additional benefit. This means that if you sustain a fracture while you're insured, you can a claim a one-off payout without a waiting period and without affecting your main income protection cover. The payout usually varies according to the type of fracture and from insurer to insurer.

Full-term income protection

A full-term income protection policy covers you for as long as you’re unable to work, however long that is. It keeps paying your monthly payments until you go back to work or your policy ends. This is different to short-term income protection cover, which only covers you for a maximum amount of time per claim – usually 1, 2 or 5 years.

Guaranteed premiums

A premium is the monthly price you pay to be covered by an insurance policy. If you have guaranteed premiums, this means your premiums are guaranteed to stay the same (or go up at a guaranteed rate) for as long as you hold the policy. The alternative to guaranteed premiums are reviewable premiums, which are reviewed at intervals throughout the policy. With reviewable premiums, you won't know at the time of taking out the policy how expensive they could become.

Incapacity definition

Your income protection policy will only pay out if you meet your insurer’s definition of incapacity. This means you meet their definition of being unable to work, based on the terms of your policy. Different policies come with different definitions, but common ones include: own occupation definition, suited occupation definition, any occupation definition, and activities of daily living definition.

Index-linked cover

When you take out income protection, you can choose to 'index link' your cover – also known as 'indexation'. This ensures the value of your cover (i.e. the monthly amount that would be paid out if you became too ill to work) goes up in line with inflation. If you choose indexation, your monthly premiums will also increase with inflation.

Insured

The ‘insured’ is a technical way of referring to the person who is insured by an insurance policy. Sometimes called the ‘policyholder’. It’s likely you’ll see this in your policy documents.

Income protection insurance

Income protection is an insurance policy that pays out a monthly amount if you can’t work for medical reasons. If you’re signed off work by a medical professional, you can claim on your income protection policy. You can’t claim if you’ve lost your income for any other reason – like redundancy.

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Level premiums

The monthly premiums you pay to be insured with income protection can either be age-banded or level. If yours are level, the amount you pay each month will always stay the same. Level premiums can be more expensive than age-banded to start with, but you have peace of mind that they’ll never change for as long as you hold the policy.

Life insurance

Life insurance is an insurance policy that pays out a tax-free lump sum if you die. It’s designed to financially protect the dependents you leave behind. Different types of life insurance include: term life insurance, whole-of-life insurance, and over-50s life insurance.

Own occupation definition

Your income protection policy will only pay out if you meet your insurer’s definition of incapacity – in other words: their definition of you being unable to work. If your policy has own occupation definition, they’ll assess your claim based on your inability to do the main things your own job requires you to do.

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Payment protection insurance

Payment protection insurance (PPI) is an insurance policy designed to cover specific loan or finance repayments in case you can’t work due to redundancy, illness or injury. It only provides short-term cover and, unlike income protection, it’s not medically underwritten when you take out a policy. This means it can be easy to take out payment protection insurance, but sometimes difficult to claim.

Payout

An insurance ‘payout’ is the money paid out by the insurer if you make a successful claim. You should receive your payout if the thing that you’re insured for happens. In the case of income protection, the monthly payout is made if you’re unable to work for medical reasons during your policy term.

Policyholder

The ‘policyholder’ is simply the person who holds the insurance policy. In other words, the person who is insured by the policy. The policy will pay out if the event that’s covered (e.g. being unable to work for medical reasons) happens to the policyholder.

Premium

An insurance ‘premium’ is the monthly price you pay to be insured. For income protection, your premiums will have two 'settings'. They'll either be guaranteed or reviewable AND age-banded or level.

Guaranteed premiums will always stay the same (or go up at a guaranteed rate) for as long as you hold the policy; reviewable premiums will be reviewed at regular intervals, so you won’t know how much it’ll cost in the future when you take out the policy.

Age-banded premiums will go up with age, to reflect your increased risk of illness; level premiums will always stay the same, as agreed when you took out the policy, for as long as you hold the policy.

Premium loading (or rating)

If an insurer adds a premium loading or rating to your income protection policy, it means your monthly premiums will be more expensive than they would normally be. They'll add a loading if they think you're more of a risk to insure than someone else of a similar profile – e.g. because you have a particular health condition or you have a risky hobby.

Quote

An insurance ‘quote’ is an estimate of how much it might cost you to be insured with a particular policy by a particular insurer. Specifically, it’s an estimate of what your monthly premiums would be. To make the quote as accurate as possible, it’s based on the information you provide about you, your health and lifestyle, as well as the insurer’s current rates. You’ll get a final price once your application goes through the underwriting process.

Reviewable premiums

A premium is the monthly price you pay to be covered by an insurance policy. If you have reviewable premiums, your premiums will be reviewed at regular intervals through the duration of your policy. You won’t know when you take out the policy how little or how much your premiums will change in the future. The alternative to reviewable premiums are guaranteed premiums, which are guaranteed to stay the same (or go up at a guaranteed rate) for as long as you hold the policy.

Short-term income protection

A short-term income protection policy covers you for a maximum amount of time if you’re unable to work – usually 1, 2 or 5 years, depending what you choose. It stops paying after that time, even if you’re still unable to work. This is different to full-term income protection cover, which covers you for as long as can’t work, however long that is.

Statutory sick pay

If you’re employed, you’re entitled to statutory sick pay (SSP) if you’re off work for medical reasons. It’s currently £95.85/week (true as of April 2021), paid by your employer, and can be claimed for a maximum of 28 weeks. You’ll start receiving it after your employer sick pay runs out or, if you don’t have employer sick pay, after being off for 4 days.

Sum assured

‘Sum assured’ is the technical way of referring to the amount of cover you have in place through your income protection policy. It’s also the amount of money that the insurer would pay out each month if you were unable to work for medical reasons.

Term

When you buy income protection, your policy ‘term’ is how long you’ll be insured for – e.g. 10, 20 or 30 years. You choose the term when you buy the policy and it will pay out if you’re unable to work for medical reasons during that time. You can make multiple claims during your policy term, if you need to.

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Underwriting

Underwriting happens when you apply for an insurance policy. It’s the process of the insurance company assessing how much of a risk you are to insure – in other words: how likely it is that you’ll need to make a claim and that they’ll need to pay out. An underwriter is responsible for evaluating this risk and deciding whether or not to accept your application, under what terms, and how much you should pay to be covered.

Waiting period

All income protection policies come with a waiting period (sometimes called a deferred period). This is how long you wait between becoming too ill to work and starting to receive your monthly income protection payments. Typical waiting periods are: 1, 4, 8, 12, 26 or 52 weeks. The waiting period you choose will affect the price of your policy: shorter waiting periods have higher monthly premiums; and longer waiting periods have lower monthly premiums.

Waiver of premium

When you buy an income protection policy, you agree to pay a monthly premium for as long as you hold the policy. If your policy has waiver of premium, it means you’ll be exempt from paying your monthly premiums if you can’t work for medical reasons. Insurers usually impose a waiting period on this benefit – i.e. a minimum amount of time you need to be off ill or injured before you can waive your premiums.

What is income protection?
An insurance policy that pays a monthly amount if you can't work for any medical reason. It's designed to replace part of your missing income, so you'll always be able to cover the essentials, even if lose your income because of an illness or injury.
What does income protection cover?
An income protection policy covers you if you're unable to work and lose your income for medical reasons. This includes any illness or injury, physical or mental, that leads to you being signed off work by a medical professional.
What doesn't income protection cover?
Income protection won't cover you if you're not working for anything other than a medical reason – like redundancy or resignation. You won't be able to claim on your income protection unless you're signed off work by a medical professional.
How much does income protection cost?
The cost of cover is different per person because it depends on how much cover you buy, how quickly you'd need the policy to start paying out, and how much of a risk you are to insure (based on your age, health and lifestyle).
Will my income protection pay out?
Yes, if you meet what's known as your insurer's 'definition of incapacity' – in other words, you meet their criteria for being unable to work. This definition is based, among other things, on the job you do, and you can read it before buying the policy.

This post is intended for informative purposes only and does not constitute advice.