How much does income protection insurance cost?

In this article, we explain how much income protection costs and which factors will make it more or less expensive. Income protection insurance is also referred to as sick pay insurance and provides a replacement monthly benefit in situations where the insured person becomes unable to work due to illness or injury.

You can also buy critical illness insurance that pays out a lump sum for more serious types of medical conditions - you will find information about this type of cover in our article, "Best and cheapest critical illness cover in the UK"

How much does income protection insurance cost?

The cost of income protection insurance depends on a number of factors such as age and the level of cover chosen amongst others. It is important, therefore, to compare income protection insurance cover across a number insurers to make sure you are getting the best deal.

What factors influence the cost of income protection insurance?

Amount of cover

Income protection insurance benefits can be up to 70% of your gross income, but lower amounts can be covered. Insurers offer varying levels of cover depending on a percentage of your income that they offer as a maximum so if you need more of your income covered, you may have to select the right insurer for your needs - we tell you how to do this later in the article. The minimum that should be covered is the amount of your basic bills such as mortgage, food and utility bills. The lower the amount of cover you have the lower the monthly premiums. Importantly, you will still be able to receive statutory sick pay (SSP) in addition to any benefit that is paid out under your income protection insurance.

What is covered

Income protection insurance can cover sickness, accident and redundancy or any combination of these three. The extent of cover will be reflected in the cost of your monthly premiums and in the choice of insurer as some do not offer redundancy/involuntary unemployment insurance. For sickness and accidents, the insurer will usually ask for medical proof that you are unfit to work. Unlike critical illness insurance which covers specific illnesses, income protection claims are usually paid if you stop working due to any sort of incapacity.

When income payments commence

With all income protection insurance policies there is a deferred period built in. The deferment period is the period between first being off work and when the benefit begins to be paid to you. This is typically between one month and three months but can be up to 12 months. The longer the deferred period on an income protection insurance policy the lower the premium.

How long income payments continue

You can choose between long term and short term income protection. Long term income protection insurance will keep paying your monthly benefit for as long as you are unfit to work and only pays out until you return to work or reach the end date of the policy. Short term income protection can be set up to pay your benefit for 1, 2 or 5 years per claim so each claim is limited to the period of time that you choose but multiple claims are possible.

Guaranteed premiums

The premiums on a standard income protection policy can be increased by the insurer over time. The insured can, however, have premiums guaranteed at the outset so they will not increase over time. This premium guarantee will mean that the cost of the monthly premiums will not increase from those agreed at the outset of the policy.

Reviewable premiums

The premiums will be reviewed at intervals detailed within the policy terms and at each review the insurer will decide whether the premium needs to be adjusted based on claims experience across other customers and rates of incidence of medical conditions in general. There is usually no cap to how much the premium can be adjusted by but these premiums are usually cheaper than guaranteed premiums at the outset of the policy.

Age-banded premiums

These premiums will increase each year with your age and are usually cheaper than guaranteed premiums. Many insurers provide a table to show the increases for each year so future premiums are predictable unlike they would be with reviewable premiums.

Medical history

If you have a history of health issues your premiums are likely to be higher to reflect the increased risk of you being off work. Alternatively, the specific medical condition you suffer with or have suffered with may be excluded from the insurance so you can't claim if it prevents you from working in the future. When you apply for income protection insurance you will be required to complete a health questionnaire which will be used to set the premiums on your policy.

Age

The older you are the higher the income protection premiums will be as you are more likely to be off work sick than a younger person.

Occupation

Some occupations are riskier than others with regards to illness or injury and this will be reflected in the income protection premiums.

How much can I expect to pay for income protection insurance?

The cost of income protection insurance will vary from company to company but I have shown below some examples to give an idea of the likely monthly cost.

Monthly cost of £1,500 income protection

Age	Monthly benefit	Cover to age:	Waiting/Deferral period	Monthly premium
30	£1,500	65	4 weeks	£35
40	£1,500	65	4 weeks	£40
50	£1,500	65	4 weeks	£55

The above rates are a general guide and based on someone working in a clerical position who has no pre-existing medical conditions and is a non-smoker. Costs vary for the reasons stated above. To get a personal quote I strongly recommend using the service detailed below.

How to find the best and cheapest income protection insurance policy

The best way to compare income protection insurance quotes is by speaking to an independent income protection specialist as they will be able to access every quote on the market and so can advise on the best possible policy for your own unique circumstances. Accident, sickness and unemployment policies can seem very similar to income protection policies but there are some important differences that an adviser can help you to understand so that you choose the right type of cover for your needs.