Despite the risk of losing their home, only 20% of homeowners have this insurance in place

3 min Read Published: 03 Oct 2019
Should I get Income Protection
Could you pay your mortgage if you were sick?

Claims stats from Liverpool Victoria show that an impressive 94% of claims were successfully paid out in 2018. Impressive as it is, if you dig a little deeper into the numbers, it reveals a rather worrying statistic.

Let's start with the good news. Claims stats reveal that just under £80 million was paid out in life and critical Illness claims, meaning thousands of families have received a sizeable sum of money when they need it the most. No sum of money is ever going to heal the emotional pain of going through such tragic events, but not having to worry about money will no doubt help the healing process. A life or critical illness payout will ensure that funerals can be paid for, treatment can be sought and the family home can be retained.

Now here comes the bad news. Liverpool Victoria's latest stats reveal that only £14.3 million was paid out in income protection. Why is that bad news? Income protection is a policy that replaces your income should you be unable to work through illness or disability and the stats say that you are around five times more likely to be ill and unable to work than you are of dying,

What insurance do people purchase when buying a new home?

A report by Royal London in 2018 claims that while 42% of people with a mortgage do not have any have life cover in place (a worrying statistic in itself), a staggering 81% of UK homeowners do not have any form of income protection. Many people believe that they will be looked after by the state, but statutory sick pay will only pay a maximum of £94.25 per week and is only payable for 28 weeks. That equates to roughly half of the average monthly mortgage repayment. Anyone suffering from a long term illness or disability and without some form of income protection plan is almost certainly going to struggle to keep up with their mortgage repayments.

Of course it doesn't just affect those with a mortgage, anyone with monthly commitments would quickly find themselves in financial difficulty without some sort of insurance in place; a worrying thought when you consider that according to the association of British insurers more than 1 million people in the UK find themselves unable to work through serious illness or injury.

What is the average age for an income protection claim

Another reason to be worried is that the average age of an income protection claimant is relatively low compared to that of a life insurance claim. According to Liverpool Victoria's latest stats, the average age for an income protection claim is 44 for a female and 48 for a male, compared to 63 for life insurance.

It is important to understand the numbers because the average age for a first time buyer according to the office for national statistics is now 30, with the average mortgage term creeping close to 30 years. Going by the averages, a first time buyer would be claiming for income protection half way through their mortgage term.

Averages don't tell the full story of course but the statistics help to highlight the gap that exists. More needs to be done to inform people of the potential risk and to explain the relatively simple solution of purchasing an income protection policy.

Summary of Liverpool Victoria claims stats for 2018

We've summarised the life insurance, critical illness and income protection claims stats provided by Liverpool Victoria for 2018 below

Life Insurance Critical Illness Income Protection
Total Paid £55 million * £24.8 million £14.3 million
Average Age Male 63 50 48
Average Age Female 63 47 44

*Includes terminal illness and Over 50's life insurance claims

What is income protection and how does it work?

Income protection pays out a monthly benefit if you are unable to work due to illness or injury. We have provided a summary of the plan below.

  • Pays out a monthly benefit and can be index-linked
  • Can pay out until retirement age
  • Paid out after an initial deferred period (selected by you)
  • Payments are tax-free

We go into more detail in our article Income Protection - Do you really need it?

Which insurance companies provide the best income protection insurance quotes

There are many insurance companies that offer a form of Income Protection insurance, but some only cover certain occupations and others will limit the benefit that you can receive. The 8 insurance companies below are our top 8 based on a combination of the level of cover they offer, claims history and reputation.

  • The Exeter
  • LV=
  • Royal London
  • British Friendly
  • Aviva
  • Legal & General
  • AIG
  • Vitality
  • Aegon
  • Holloway Friendly

The best company for you will depend on your own personal situation and so we would recommend that you seek independent advice, check out our article how much does income protection insurance cost? for more information.

How much does income protection cost?

The simple answer is probably not as much as you think. There are many options available to you so that you can tailor the cost to your individual needs. As a rough guide, someone working in a clerical job with no medical complications can get around £1,500 per month (deferred for 4 weeks) for the same price as their age. So if you are 30, £1,500 per month could roughly cost around £30 per month.

It is not an exact science and everyone will be different so we would always recommend that you get a quote from an independent expert who can find the best income protection policy for you at the best price. We cover this in more detail in our article how much does income protection insurance cost?.