Wondering whether the insurance policies you have will or won’t pay out when you need them to is natural. Even more so, perhaps, for health-related policies like income protection, which can seem quite nuanced compared to simpler types of insurance, like pet, car or travel insurance. The truth is that income protection pays out most of the time: around 90% of claims are paid.
The key when buying any kind of cover is to make sure you understand what is and isn’t covered by your own policy – and therefore when it will and won’t pay out. This way you avoid any unfortunate surprises when it comes to making a claim.
The good thing about income protection is that it pays out for loss of income caused by any medical reason. That part is straightforward, but you also have to meet your insurer’s ‘definition of incapacity’ in order for the policy to pay out. In other words: their conditions for deeming you unfit to work. The other thing to bear in mind is that all policies come with a waiting period after making a valid claim.
When does income protection pay out?
Put simply, income protection pays out:
- For loss of income caused by any medical reason
- If you’ve been signed off work by medical professional
- If you meet your insurer’s ‘definition of incapacity’
- And after your chosen waiting period has elapsed
When doesn’t income protection pay out?
Income protection won’t pay out:
- If you haven’t been signed off work by a medical professional
- If you don’t meet your insurer’s definition of incapacity
- Before your waiting period has elapsed
- Or for loss of income by any other cause – like resignation or redundancy
Being accurate and honest during the application process is essential. Misrepresentation is a common reason for claims being declined – meaning you failed to disclose something about your health or lifestyle when you applied. Read our guide to making a valid income protection claim for more detail.
What’s an insurer’s definition of incapacity?
Your insurer's ‘definition of incapacity’ is their definition of you being unfit to work, as defined in your policy. This will be different per policy, so it’s important to look this up before you buy. When you buy an income protection policy, it’ll come with one of the following definitions:
|Activities of daily living occupation||Your insurer will 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.|
|Any occupation definition||Your insurer will assess your claim based on your inability to do not just your own job, but any job.|
|Own occupation definition||Your insurer will assess your claim based on your inability to do the main things your current job requires you to do.|
|Suited occupation definition||Your insurer will assess your claim based on your inability to do not just your own job, but any suitable job based on your skills and experience.|
What’s an income protection waiting period?
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.
It’s important to remember that income protection only starts paying after your waiting period has elapsed. This means you’d need to be able to support yourself financially during your waiting period. Generally speaking, the longer the waiting period you choose, the cheaper your monthly insurance premiums will be – and vice versa.
Does income protection pay out for existing conditions?
It depends whether or not your insurer added an exclusion to your policy when you applied. If you disclose an existing condition during the application process, they might do this, depending on the nature or severity of your condition. If there isn't an exclusion added to your policy, your income protection policy will pay out for any medical cause, even if it was an existing condition. Read our guide to buying income protection if you have an existing health condition for more info.
Advantages of income protection
You’re covered for any medical reason
You can make a claim on your income protection policy if you’ve been signed off work, whatever the medical cause. This includes any physical or mental health illness or injury that causes you to lose your income. This is different from critical illness cover, another kind of health-related insurance policy, but one that only pays out if you’re diagnosed with one of the specific illnesses or conditions listed in your own policy.
It provides longer-term protection than sick pay
There are different types of income protection to choose from, including short-term cover and full-term cover, but whichever you go for, it gives you protection beyond a typical employer or statutory sick pay period. Long-term illness or injury is something that could happen to any of us during our working lives, so this kind of backup can be invaluable.
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- Income protection pays out if you lose your income for any medical reason, so long as you’ve been signed off work by a health professional
- You have to meet your insurer’s ‘definition of incapacity’ for your claim to be successful (in other words: satisfy them that you’re unfit to do your job, depending on what definition is in your policy)
- You’ll start receiving your monthly income protection benefit after your waiting period, which you choose when you take out the policy
- Income protection doesn’t cover resignation or redundancy, so it won’t pay out for this kind of income loss