Being unwell is challenging at the best of times – but it can be even more challenging if it leaves you unable to work. Without financial protection, the potential loss of earnings could have significant financial consequences on any household, especially as most of us base our regular outgoings on our regular income.
This is where income protection comes in. It can compensate for loss of income by providing monthly payments, usually up to 50-60% of your pre-tax earnings, if you’re unable to work for physical or mental health problems. This money can provide a lifeline at a difficult time – and while there are no rules on how you should spend the cash, most people use it to make sure essential living costs like the rent or mortgage, bills, food, and transport are paid for.
What does an income protection policy cover me for?
If you’re covered by an income protection policy, you can make a claim if you experience any health problem that impacts your ability to work and earn money. The most common reasons for claiming are:
- Musculoskeletal problems – like broken bones or back pain
- Mental health conditions – like depression, stress or anxiety
- Serious illnesses – like cancer, heart disease or strokes
But remember: these are just examples. With income protection, you're covered for any medical reason, so long as you've been signed off work by a medical professional. The only exception to this is if there's an exclusion on your policy, which we'll explain more about below.
If you’re covered by an income protection policy, you can make a claim if you experience any health problem that impacts your ability to work and earn money.
What doesn't an income protection policy cover me for?
An income protection claim can only be made if you’re unable to work for a medical reason. That means if you lose your income for any other reason – such as redundancy or resignation – you won’t be able to make a claim on your policy.
Your income protection policy may also include certain exclusions. Many insurers exclude loss of income because of an injury caused by self-harm, for example. And if you disclose an existing health condition when you apply, your insurer may apply an additional exclusion around that, depending what it is. It's extremely important to be honest about your health and lifestyle when you apply for a health-related insurance product like income protection – otherwise you risk invalidating your policy and it not paying out when you really need it to.
An income protection claim can only be made if you’re unable to work for a medical reason – so if you lose your income for any other reason, like redundancy or resignation, you won’t be able to claim.
When does income protection pay out?
You can make a claim on your income protection policy if you're signed off work by a medical professional. Your claim will be successful if you meet your insurer's definition of incapacity. And you'll start receiving payments after your waiting period.
Insurer's definition of incapacity
Your insurer's definition of incapacity is their definition of you being unfit to work. 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.
An income protection 'waiting period' is how long you wait between becoming too ill to work and starting to receive your monthly insurance payments. Typical waiting periods are: 1, 4, 8, 12, 26 or 52 weeks. You choose this when you take out a policy, based on how quickly you'd need to start receiving payments if you lost your income.
What's the difference between income protection and critical illness cover?
Income protection and critical illness cover are both types of insurance that protect you in case of ill health – but what they cover you for and the way they pay out is different.
- Income protection covers you for any medical reason, so long as you're signed off by a medical professional, and pays out a monthly amount if you need to claim
- Critical illness cover covers you for any of the specific illnesses or conditions listed in the policy you buy and pays out a lump sum if you need to claim
Both offer valuable protection in case of illness or injury, and there’s nothing to stop you taking out both policies – but one of the benefits of income protection is that it covers any medical problem (including the kinds of critical illnesses and conditions covered by a critical illness policy, so long as it stops you from working). If you've been signed off by a medical professional, you can claim on an income protection policy – whatever the cause.
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- Income protection covers loss of income caused by any medical reasons
- You can claim on your income protection policy if you've been signed off work by a medical professional, whatever the cause
- Income protection doesn't cover any other kind of income loss, like redundancy
- Income protection will pay out after your waiting period, so long as you meet your insurer's definition of incapacity