A Guide to Income Protection Insurance UK | Spectrum Financial Advice
Date: 18 January 2022 Author: Lewis Cable
Spectrum Financial Advice Guide to Income Protection Insurance UK

Spectrum Financial Advice Guide to Income Protection Insurance UK

What is UK income protection insurance? Learn everything you should know about this type of personal protection in our guide to UK income protection insurance.

Income Protection Insurance


  • Spectrum FA Guide to Income Protection Insurance UK
  • What is Income Protection Insurance?
  • Is Income Protection the Same as Critical Illness Insurance or PPI?
  • Who Should Take Out Income Protection Insurance & Why?
  • How Does an Income Protection Policy Work?
  • What is an “Index-Linked” Policy?
  • What is a “Stepped Benefit” Policy?
  • What Optional Extras Do Policies Offer?
  • When Does a Policy Pay Out?
  • How Insurers Define Your “Inability to Work”
  • How Much Does UK Income Protection Insurance Cost?
  • How Can Spectrum FA Help You with Income Protection Insurance?

Spectrum FA Guide to Income Protection Insurance UK

Personal protection insurance experts Spectrum FA have assisted families across the UK in protecting their financial security with income protection policies for many years. Some of the first questions many of the people we work with ask are “Exactly what is income protection insurance, how does it work and how much does it cost?” We have therefore taken our combined experience and knowledge in this field and created this guide to income protection insurance UK to answer these and other questions you may have about it.

There are several different personal insurance options available to you. Contact Spectrum FA today to learn more about them.

What is Income Protection Insurance?

Losing an income due to an inability to work for a long time because of a serious injury or illness can have significant financial ramifications for your family. An income protection policy is designed to protect you and your family from these ramifications.

Contact us today for more detailed information and a free review (no-obligation) of your family’s unique needs.

Is Income Protection the Same as Critical Illness Insurance or PPI?

The answer to both parts of this question is no, because:

  • Critical illness insurance will pay out a lump sum if you are diagnosed with one of a specified set of critical illnesses/conditions, and
  • PPI (payment protection insurance) is a type of policy that covers a specific debt and usually provides benefits for a shorter term.

Income protection insurance, on the other hand, provides regular monthly payments (tax free) for a specified duration if an insured person is unable to work for some time by any illness or an injury.

Get in touch to learn more.

Who Should Take Out Income Protection Insurance & Why?

Many families’ finances are finely balanced and dependent on one or more regular incomes. Should one of these incomes be lost due to a serious injury or a prolonged illness, it could become extremely difficult (if not impossible) for the family to:

  • Cover regular monthly expenses (i.e. rent/mortgage payments, utility bills, other household expenses)
  • Settle credit card bills, loans and/or any other outstanding debts
  • Maintain the standard of living they are used to

This, of course, could cause a family significant amounts of worry and stress at an already difficult and distressing time.

Protecting your family with income protection insurance is highly recommended for everyone, but especially for anyone whose family entirely depends on their income.

Income protection insurance is also available to stay at home partners and/or full-time parents, who may not work or have their own income. Certain providers will set a monthly benefit amount that will become payable to them, if they are not able to perform their daily duties due to illness or accidental injury.

Spectrum FA can help you obtain a suitable a policy to adequately protect your family. Get in touch with our experts today to discover how.

How Does an Income Protection Policy Work?

If an insured individual becomes unable to work due to an injury or illness, an income protection policy will provide them/their family with a secure income by making regular, tax free monthly payments for a pre-determined length of time.

The family can then use these payments to cover their rent/mortgage and loan/credit card repayments; household, medical and/or travel costs and any other expenses enabling them to maintain their lifestyle.

There are different options to consider with income protection policies, including:

  • Long-term policies, which usually pay out until you return to work, your policy expires or until you retire or pass away;
  • Short-term policies, which will usually pay out for 12 – 24 months and often less expensive in terms of premiums than long-term policies
  • “Index-linked” policies (see below for more information), and
  • “Stepped Benefit” policies (learn more below)

When taking out a policy, there are also other various options to consider, including the:

  • Cover level (the amount that will be paid each month in the event of an insured person becoming too ill to work or sustaining an injury that requires a prolonged recovery period). Cover levels are typically calculated as a percentage of the named (insured) individual’s usual annual income.

This percentage will normally range up to 60%, but some insurers offer to pay higher percentages of a salary’s first portion (like the first £50,000, for instance) and lower percentages on anything above this.

  • Term (duration) of your policy (i.e. for how many years the policy will cover you)
  • Deferred period, i.e. how soon after you first become unable to work the policy should start paying out. Most policies have a deferred period of one to 12 months (depending on relevant policies/providers) but it is possible to agree on longer periods.
  • Duration of payments, i.e. for how long the policy will make payments
  • Add-ons/optional extras (if any) you wish to include (see below for details)
  • Learn more about income protection insurance

We can help you make these decisions – contact us now to find out how.

What is an “Index-Linked” Policy?

Inflation is a sad reality of life and consequently an important factor to consider when taking out income protection insurance.

While you are at work, your salary will (hopefully) steadily increase to ensure your income keeps in line with the ever-rising cost of living.

If, however, you need to claim on an income protection policy that pays out only a percentage of your income at the time you took the policy out and future increases were not accounted for, the value of the amount paid out will continually decrease over the years.

In other words, in five or ten years’ time, your monthly income protection payments may end up barely covering your rent, let alone anything else.

To prevent this from happening, you can “index-link” your policy, which means prospective pay-outs will increase every year with a measure – i.e. the RPI (retail prices index) – of inflation.

This will also mean your premiums will increase (usually by slightly more than the rate of inflation) every year but, considering the potential financial consequences of not taking inflation into account, this is a comparatively small price to pay.

Spectrum FA can provide you with more detailed information on this – why not get in touch to speak with one of our advisors right now?

What is a “Stepped Benefit” Policy?

Most employers pay employees too ill to work some type of sickness benefit. In many cases, these benefits consist of full payment of the employee’s usual salary (or a high percentage) for a certain period followed by a period of reduced payments (a lower percentage of the salary).

If this is the case with your employer, a “stepped benefit” income protection policy may be the perfect solution, because this type of policy allows you to select two different payment levels and two different deferred periods.

If, for example, your employer was to pay you a high percentage of your usual earnings for 3 months and a lower percentage thereafter, you could set your policy’s:

  • 1st deferred period at the earliest available and the payment level for this period at a lower percentage
  • 2nd deferred period at three months and the payments to be made from there on at a higher percentage (i.e. as your employer’s payments reduce, your policy’s payments increase)

Request a no-obligation review of your circumstances (free of charge) now to determine whether this is a viable option for you.

What Optional Extras Do Policies Offer?

Which optional extras and add-ons are offered by a policy varies between providers, so it is important to obtain expert advice on income protection insurance.

Our advisors can help you decide which optional extras/add-ons will be suitable for you. Contact us for more information and/or a free review of your unique needs.

When Does a Policy Pay Out?

As we mentioned above, an income protection policy will start paying out following a pre-determined amount of time (the deferred period) after you first became incapable of going to work.

The length of this period may range anywhere between 1 day and 12 months (some providers may offer a longer deferred period), depending partly on:

  • How long you believe your family will be able to cope financially without these payments. If, for instance, you have enough savings to “tie you over” for six months, you could set commencement of payments to coincide with the end of this time.

A thorough review of your personal situation can help determine the most suitable deferred period you should select to ensure your family is adequately and effectively protected. Get in touch to arrange your free review by an expert advisor now.

How Insurers Define Your “Inability to Work

Another factor affecting when a policy will pay out is how insurers define someone’s ‘inability to work’. This definition can include the following methods:

“Activities of Daily Living”. This method defines your “inability to work” based on your ability or inability to perform basic daily tasks like:

  • Showering/having a bath
  • Getting in/out of bed, getting dressed/undressed
  • Walking, climbing stairs & lifting
  • Getting from one room to another
  • Reading, writing, answering the telephone, etc.
  • Feeding

Typically paying out if a claimant cannot do three or more of these basic activities.

“Own Occupation”. Policies using this method will pay out if you become unable to work and cannot perform your current occupation, regardless of whether you can or cannot perform basic daily tasks.

Spectrum FA will recommend a suitable policy that is competitively priced. To find out more, contact our income protection specialists today.

How Much Does UK Income Protection Insurance Cost?

Income protection premiums not only vary between different insurance providers but also depend on:

  • Cover level you require (the higher the required monthly benefit, the higher premiums will be);
  • Policy’s term (duration);
  • Deferred period (the longer this period is, the lower premiums will be);
  • Duration for which payments will be made (the longer the payments are set to continue, the higher premiums will be), and
  • Which, if any, add-ons/optional extras you choose to include

In addition, premiums will also reflect your:

Age – Insurers generally consider older applicants to be more likely to develop an illness. The older you are, the higher premiums are therefore likely to be.

Medical History – If you have a long history of health problems, your risk of developing an illness could be deemed higher than that of someone who has never been ill. Your premiums could reflect this.

Occupation – Some occupations expose employees to a higher risk of accidental injuries, work (stress) related illnesses and/or physical assaults. Occupations typically classed as “high risk occupations” can include, for instance:

  • Scaffolders, roofers, construction workers & civil engineers
  • Protective services workers – armed forces members, police officers, firemen, prison officers & security guards;
  • Fishermen, agricultural (forestry & farming) & oil rig workers;
  • Professional drivers (taxi/lorry/delivery drivers), electricians, carpenters & plumbers.

Working in one of these occupations could result in higher premiums, as could being a smoker and/or engaging in high risk sports/leisure activities like:

  • Parachuting, hang-gliding and surfing
  • Motorsports, horse riding and scuba diving
  • High impact sports (rugby, hockey/ice hockey, football, boxing, etc.)
  • Rock climbing/mountaineering, base or bungee jumping
  • Recreational boating/fishing, etc.

Finding a policy with affordable premiums can therefore be difficult – but Spectrum FA can help you do just that. Contact us to find out how.

How Can Spectrum FA Help You with Income Protection Insurance?

Spectrum FA have access to the leading insurance companies’ most competitively priced, comprehensive and reliable policies. We have helped many individuals and families obtain suitable and affordable income protection insurance for many years.

Fully aware that the needs of every individual and every family are unique, we provide tailored advice and offer a free, no-obligation review of your/your family’s specific circumstances and needs.

Any policy we recommend will be suitable for you and your family and match your unique requirements. We will guide you through the process and set up a suitable policy to secure your family’s financial future. Why not request a review right now?

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