Yes, there is nothing that would stop you from having more than one income protection policy - also known as sick pay insurance - but you may find yourself unable to claim the full overall amount of benefit that you have insured.
In this article, we explain what happens if you need to claim against an income protection policy; why you cannot claim the same amount that you earn and reasons why two income protection policies could provide flexibility as well as financial support.
For more information on how income protection insurance works, read our article 'What is income protection insurance and do you really need it?'
Can you claim on two income protection policies?
It is possible to claim against two income protection policies as long as your claim amount overall does not breach limits set out by each policy. Each insurance provider applies a limit to the proportion of your salary or income that can be claimed in the event that you become unable to work under the terms of the policy. The limit is usually between 50% and 70% of your gross income. If the amount of benefit payable under each income protection insurance adds up to more than the maximum percentage of your gross income allowed under either, you may find that you will not be paid the combined benefit across more than one income protection insurance.
Example of how two income protection policies may be assessed for a claim
Income protection policy 1
- The maximum benefit you are allowed to insure = 60% of your gross income
- You choose to insure 50% of your gross income
Income protection policy 2
- The maximum benefit you are allowed to insure = 60% of your gross income
- You choose to insure 20% of your income
Claim decision: In this example, you will most likely receive the whole insured amount under Policy 1 but only half of the insured amount under Policy 2. This is because your overall insured amount is 70% of your gross income which exceeds the limits by 10%. As a result, your paid claim will be reduced by 10%.
It is sensible to work out what you can claim rather than what you can insure so that you do not waste money insuring a benefit amount that will never be paid if you make a claim.
Will my employer and personal income protection policies pay out if I am too sick to work?
Your employers' income protection will payout if you are unable to work due to illness and injury. If you also have a personal income protection policy, it can only pay out if either policy's maximum allowed percentage is not exceeded when the policies are combined.
Why are there limits to the amount you can insure with income protection insurance?
Essentially insurance companies will wish to leave space between what you earned when you were at work and what you can receive whilst off work due to incapacity. It is hoped that this creates an incentive to return to work as you will be financially better off in work rather than out of work. Of course, it doesn't insinuate that those who are ill or injured to a point where they are unable to work should return to work before they are fit to do so.
It is also important to highlight the fact that the benefit that is paid through an income protection policy to you is usually not taxed so a benefit that is 50% to 70% of your gross income is not too different to your take-home pay depending on the rate of income tax and national insurance you pay. In many instances, you will also be able to continue to receive statutory sick pay (SSP) at £109.40 per week in addition to your income protection insurance payout.
Is it worth having two income protection policies?
It is wise in some instances to have two income protection policies especially if one is provided by your employer and may be lost if your employer withdraws this benefit or you change jobs. Maintaining a personal income protection policy can give you control over the financial security it provides.
Qualifying for income protection involves an application process that includes sharing your medical history. If you have suffered ill health in the past or have any ongoing medical conditions, these may be excluded as causes for a future claim if you become unable to work. So, you can see how it is useful to buy income protection insurance, also referred to as sick pay insurance whilst you are fit and healthy. It will ensure that any future change in your health is covered by your insurance should you have to take time off work due to it.
A personal income protection policy that you own and pay for personally can be ported with you to any new job or place of work giving you security in the long run. It can prevent a situation where you lose your employer's income protection and find that a personal insurance policy, at that point, will be impacted by your older age or poorer health.
How to choose the best sick pay insurance
Nobody wants to find that they have spent money on insurance only to discover they cannot claim what they thought would be paid. Buying more than one income protection insurance policy can be a good idea in some cases but be sure that you understand what will be paid if you need to claim. Also, it is worth pointing out that critical illness insurance does not work in the same way and will pay out across multiple policies if you have more than one.
When choosing the best sick pay insurance for your personal circumstances that will give you peace of mind, you will need to select an appropriate:
- level of cover - the amount that will be paid if you need to claim
- waiting period / deferred period - the length of time between the first day that you are off work and when you will receive your benefit
- period of payment - the length of time that each claim will be paid as a maximum whether you choose a short-term cover or full cover over the long term
- retirement age - the age at which your insurance will cease to cover you
It is wise to discuss your requirements with an income protection insurance specialist who will guide you to the correct choice of parameters for your insurance and scan the market for the best policies and prices. Insurance companies differ in their pricing as well as how they consider health history and your occupation - some will be more lenient than others so it pays to explore all options.
At Money to the Masses, we have vetted the services of life insurance and sickness insurance specialists* who are experts in this area. They will assess your personal needs and make recommendations based on what you need as well as what you want to spend.
They can also ensure that you're not paying for term income protection insurance that won't pay out due to benefits you may already have through other insurance policies as well as your employer's sick pay and benefits. Especially if you are weighing up the pros and cons of buying income protection and critical illness insurance, you should understand the differences in when these will pay out. You can also find more information in our article, "Critical illness vs Income Protection: Which is best?"
As a Money to the Masses reader, you can get up to £100 cashback for arranging your cover this way.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article