What is Income Protection insurance?
Income Protection insurance (sometimes referred to as permanent health insurance) is a policy that provides a benefit (a sum of money) in the event that you are unable to work due to illness or injury. The premiums you pay will be based on your age, your health, your occupation and your chosen ‘deferred period’. More on deferred period’s later. Before we look at which is the best Income Protection insurance policy, we need to take the time to ensure that we understand what it is, what it does and crucially what it doesn’t do.
How does Income Protection insurance work?
Income Protection insurance provides a monthly benefit in the event that you are unable to work due to illness or injury. It is designed to replace a portion of income that you are missing out on while incapacitated. An Income Protection policy does not pay out a lump sum and so shouldn’t be confused with Critical Illness insurance (pays out a lump sum if you are critically ill) or Family Income Benefit (pays out a fixed monthly or annual lump sum in the event of death).
As this article is titled ‘Which is the best Income Protection policy’, I am going to assume that it is a policy that you understand and are actively seeking to buy, however if you are still unsure, check out our article ‘Income Protection - do you really need it?’
Which is the best Income Protection insurance policy?
The answer to this question depends on how you define ‘the best’. For some people, the best will be the company that has the best customer service, for others it might be the company that responds the quickest, others may view the cheapest as the best and many will view the company that has the best claims statistics as the best.
The best way to answer the question is to fully understand how Income Protection works, ensure you understand the benefits that you currently have and that you prioritise what it is that is important to you (price, customer service, claims stats etc). This article should help you understand the policies that each Income Protection provider offers, but the best way to truly ensure that you are buying the best policy for your individual circumstances is to speak to an independent specialist as they can do a lot of the hard work for you.
Firstly, ensure that you speak to an independent specialist who has access to the whole of the market and who doesn’t charge a fee for their services. An independent Income Protection specialist is key to getting you the best policy at the best price rather than solely relying on an online Income Protection quote comparison service as it cannot be tailored to the same degree. We have sourced the best Income Protection comparison tool on the market, not only will it provide an initial quote for guidance, but crucially you will receive a follow-up email or call in order to ensure that you get the best policy, tailored to your needs.
Income Protection policy information by provider
|Aviva||British Friendly||The Exeter||L&G||LV=||Royal London||Vitality|
|Minimum age at entry||18||18||18||18||18||18||18|
|Maximum age at entry||59||59||59||59||59||59||59|
|Benefit payable to||70||70||70||70||70||70||70|
|Policy Types||2 year and Full Term||1, 2, 5 year and Full Term||2, 5 year and Full Term||2 year and Full Term||3 year and Full Term||1, 2, 5 year and Full Term||2 year and Full Term|
|Maximum Benefit pa||£240,000||£45,500||£120,000||£240,000||£250,000||£250,000||£120,000|
|Max % of salary||65%||70%||60%||60% (first £60k) then 50% thereafter||60%||65% (first £15k) then 55% thereafter||60% (first £60k) then 50% thereafter|
|Deferred periods||4, 8, 13, 26, 52, 56, 60, 65, 80, 84, 92, 104||0, 1, 4, 8, 13, 26, 52||0, 1, 4, 8, 13, 26, 52||4, 13, 26, 52||4, 8, 13, 26, 52||1, 4, 8, 13, 26, 53||1, 4, 8, 13, 26, 52|
Income Protection policy details explained:
Minimum age at entry: You must be at least this age to apply for a policy
Maximum age at entry: This is the maximum age in which an insurer will accept new applications
Benefit payable to: This is the maximum age that you can choose to receive your benefits to be payable until
Policy Types: These are the different types of policy available. Depending on the insurer, you can choose to receive benefits for a limited period, such as 1, 2 or 5 years. All insurers in the table above offer a ‘Full Term’ option, meaning that the benefit will payout as long as you wish (up to the maximum age of 70)
Maximum Benefit pa: This is the maximum benefit that an insurer will pay out per policy, per anum.
Max % of salary: This is the maximum percentage of your salary that a company will insure. Example: You earn £100,000 and the max % = 60%, the maximum income you can insure is therefore £60,000. These limits apply as it is accepted that people spend less money when they are incapacitated and are usually in receipt of other state-funded incapacity benefits. For more help on understanding how much you should insure yourself for, check out our article 'How much Income Protection do I need?'
Deferred periods: This is the period of time in which you have to wait until you can make a claim. The longer you can wait, the cheaper the policy.
Income Protection Claims Statistics in 2018
Below we have summarised the claims statistics for the most popular Income Protection providers in 2018. You should take care when using these statistics to form a decision as each insurer has its own claims handling process and may collate its statistics differently to the competition. A good example is Royal London; the statistics suggest that they have rejected a much larger number of claims, however they had a much higher percentage of claims rejected as a result of non-disclosure. Some could argue that this highlights a separate issue, perhaps in their application process, but it goes to show that you should look further than the number itself.
|% Paid Out in 2018||% Rejected in 2018|
|Exeter Family Friendly||93.0%||7.00%|
Use an independent specialist to get the best Income Protection policy
Income Protection is not a simple insurance product and shouldn't be treated in the same way as car or pet insurance where you can purchase the cover via an online calculator in a matter of minutes. There are multiple factors to consider and so you would be best speaking to a specialist whose job it is to find the most suitable policy for your own unique circumstances. As we mentioned above, we have sourced the best Income Protection comparison tool on the market; not only will it provide an initial quote which will help you to understand the approximate cost, you will receive a follow-up email or call in order to ensure that you get the best policy, tailored to your needs.
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