What is a deferred period on an income protection policy?
The deferred period on an income protection insurance policy is the period between the first day of you being unable to work (through illness or injury) and your income payments commencing. As an example, an income protection insurance policy with a 4-week deferred period will commence income payments once the policyholder has been off work for a period of 4 weeks.
How long is the deferred period?
The length of the deferred period is selected when you commence an income protection policy and this would typically be between 4 weeks and 12 months, although it can be shorter. The longer the chosen deferred period the lower the monthly premiums will be on an income protection policy.
How do I choose the best deferred period for an income protection policy?
The best choice of deferred period will depend on your personal circumstances and you need to take into account the following two factors:
How much sick pay do you receive from your employer?
If your employer pays you full sick pay for a period of time then it makes sense to set your deferred period from the date the sick pay ceases. There is no point in setting your deferred period for less than your full sick pay period as the insurance company will not pay out until you stop receiving income from your employer.
If you require cover for redundancy in your income protection policy then you need to take into consideration the amount of redundancy payment you will receive from your employer (if any) when setting the deferred period. As an example, if you are likely to receive a redundancy payment equal to six month salary then it would make sense to set the deferred period at six months.
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Available personal savings
If you have access to personal savings then it would make sense to factor this money when selecting a deferred period as it will save you money on your monthly premiums. If, for example, you have enough savings to replace your income for three months in the event of sickness, accident or redundancy and your employer would pay you full pay for three months, then you should set a deferred period of six months. It can be tempting to choose a shorter deferred period than what you need as this may seem like better value but if you never claim on the policy, you will have paid more than you needed to as shorter deferred periods cost more.
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