Income protection insurance can offer financial assistance if you are unable to work due to illness or injury. It is particularly important for freelancers and self-employed workers who do not have ‘employee’ benefits such as sick pay or holiday pay.
Below we look at what income protection insurance can cover as well as what it doesn’t cover. To learn more about income protection for self-employed workers, read our guide: Do self-employed workers need income protection insurance?
What is covered by income protection insurance?
There are different types of income protection insurance policy, which offer slightly different levels of cover. However, income protection typically offers cover if you are:
- Unable to work for a prolonged period because of a specified illness or condition
- Unable to work for a prolonged period because of an injury or disablement
An income protection policy can provide peace of mind that if you cannot work due to a long-term sickness or injury, then you will still be able to meet your financial obligations.
The premiums you pay will take into consideration factors such as your age, your job and your current health (including any pre-existing conditions you may have).
As they very much depend on your individual circumstances, all income protection policies tend to offer slightly different premium prices and levels of cover. It is therefore important that you check the policy wording and know exactly what is covered before you take out the policy.
What is not covered by income protection insurance?
Although income protection insurance can offer wide-ranging cover for many circumstances, there are some areas that are not covered. Before taking out a policy it is important to familiarise yourself with what is not covered – rather than finding out when it comes to making a claim.
Types of illness
There are two things to be aware of when it comes to the type of illnesses that are covered. First of all, your income protection policy wording should list all the illnesses, medical conditions and injuries that are covered by the policy. Depending on the insurance company and your specific circumstances e.g. your age, whether you smoke, if you have any pre-existing conditions etc. some types of illness may not be covered by the policy.
Secondly, it’s important to remember that the purpose of an income protection insurance policy is to provide cover if the illness or injury has a direct impact on your ability to work – not just the illness or injury itself. You will need to demonstrate that you are unable to work because of the illness or injury in order to submit a valid claim.
When you take out an income protection insurance policy, you will usually have the option to choose how soon the payments start once you are unable to work. This is known as the ‘deferred period’, and works very much like the excess payment on car insurance.
The longer the period of time you can manage on your own savings, the lower your premiums will be.
Deferred periods tend to be between two weeks and a month, so for that period of time out of work you are not covered by your income protection policy. Once you are unable to work for longer than your deferred period, then the policy cover kicks in and you start to receive your payments.
Most income protection policies only provide cover for illness or injury, so will not pay out if you are made redundant.
There are other forms of income protection insurance available which include ‘unemployment’ under the policy terms, but this only applies to involuntary redundancy. If you choose to take voluntary redundancy then your policy will not pay out.
This is usually referred to as ‘short term income protection insurance’ or ‘redundancy insurance’, and is designed to protect your income so you can pay your mortgage, rent or utility bills during a brief period of unemployment if you suffer an involuntary redundancy.
Income protection insurance for the self-employed
Create Insurance have partnered with Vitality to offer income protection and life insurance for freelancers and the self-employed