Which is the best Income Protection insurance policy in the UK?

12 min Read Published: 20 Jul 2021

Income ProtectionIn this article we look at Income Protection insurance, paying particularly close attention to the Income Protection providers and looking at which Income Protection policy is best.

What is Income Protection insurance?

Income Protection insurance (sometimes referred to as permanent health insurance or sick pay insurance) is an insurance policy that provides a regular 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, whether you smoke, 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 regular monthly or annual lump sum of money 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 highest percentage of claims paid as the best.

The best way to answer the question is to fully understand how Income Protection works. It helps to understand the sick pay benefits you would receive through your employer and how long your savings would last. Use this information to establish how soon, after becoming incapacitated, you will need the income protection benefit to pay out to you as well as how much money you will need. The next step would be to prioritise what it is that is important to you - price, customer service, claims paid, options and benefits.

This article will 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.

Income protection specialists* have in-depth knowledge about which insurance companies will provide the most suitable income protection for you based on what you do for a living and how long you can financially manage before you'll need the policy to step in and pay you an income. They also know how to factor in any health or lifestyle risks that could put you at a higher risk of claiming so that you buy the best income protection insurance at the best price.

Compare income protection insurance providers UK

AIG Aviva British Friendly The Exeter Holloway Friendly HSBC L&G LV= Royal London Shepherds Friendly Vitality
Minimum age at entry 17 18 18 18 18 17 18 17 18 16 18
Maximum age at entry 54 59 64 59 59 59 59 59 59 60 59
Benefit payable to age 70 71 70 70 70 68 70 70 70 68 70
Policy Types 2 year and Full Term 2 year and Full Term 1, 2, 5 year and Full Term 2, 5 year and Full Term 1, 2 year and Full Term 2 year and Full Term 1, 2 year and Full Term 1,2 year and Full Term 1, 2, 5 year and Full Term 2 year and Full Term 2 year and Full Term
Maximum Benefit pa £249,996 £240,000 £45,500 £120,000 £60,000 £50,000 £240,000 £250,000 £250,000 £49,000 £120,000
Max % of gross salary 60% of first £30k then 55% of £30k to £100k then 45% thereafter 65% of first £60k then 45% thereafter 70% 60% of first £100k then 40% thereafter 60% 50% 60% of first £60k then 50% thereafter 60% 65% (first £15k) then 55% thereafter 70% 60% (first £100k) then 50% thereafter
Deferred periods

(weeks)

4, 8, 13, 26, 52 4, 8, 13, 26, 52, 56, 60, 65, 80, 84, 92, 104 4, 8, 13, 26, 52 0, 1, 4, 8, 13, 26, 52 1, 4, 8, 13, 26, 52 options between 4 & 52 4, 8, 13, 26, 52 4, 8, 13, 26, 52 4, 8, 13, 26, 53 4, 8, 13, 26, 52 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 at 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. Limited period benefits stop paying after the agreed period even if your incapacity continues but if you return to work and become incapacitated again, you can claim again for the agreed term. All insurers in the table above offer a ‘Full Term’ option, meaning that the benefit will pay out as long as you are unable to work, potentially up to your chosen retirement age.

Maximum Benefit pa: This is the maximum benefit that an insurer will pay out per policy, per annum and is usually tax-free.

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 to receive if you become incapacitated to work is £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 time between your first day of incapacity to work and when you will receive a benefit from your income protection policy. It represents the time that you are paid by your employer and/or can survive on your savings if you choose to do this. The longer you can wait, the cheaper the policy.

Income Protection Claims Statistics in 2020

Below we have summarised the claims statistics for the most popular Income Protection providers in 2020. 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.

Income protection insurance provider % Claims paid in 2020 % Claims rejected in 2020
AIG n/a n/a
Aviva 88% 12%
British Friendly 87% 13%
Exeter Family Friendly 91% 9%
Holloway Friendly 89% 11%
HSBC n/a n/a
L&G 93% 7%
LV= 80% 20%
Royal London 86% 14%
Shepherds Friendly n/a n/a
Vitality n/a n/a

n/a: no information about claims was available for the year 2020

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.

You can arrange a callback from an income protection specialist* and they will take the time to understand your personal circumstances and provide appropriate solutions at the best price. As a Money to the Masses reader you'll receive up to £100 cashback if you buy your income protection insurance 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. This 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