Do I need income protection insurance?

Income protection is a type of insurance that gives you a fixed amount of money each month if you can’t work because of an injury or illness.

The idea is to replace some of your lost earnings and pay any bills or expenses that still need covering, even when you're not earning.

Our income protection policy is called Living Costs Protection. It pays a monthly sum if, during the policy term, you can't work because of illness or injury. 

It's worth considering that if you stop paying your premiums or cancel the policy, your cover will stop and you won't get your money back. Our policy has no cash-in value at any time.

If you’re young and fit, you may not have thought about what could happen in the future if you stop earning a monthly pay cheque because you’re sick or injured and can’t work.

Let’s think about some potential sources of money that could help if that were to happen.

If you’re an employee, you should be eligible for statutory sick pay, and your employer may top this up with company sick pay. But this could only be for a certain amount of time. If you take longer than that to recover, what happens afterwards? And if you’re self-employed, you won’t be able to access this kind of traditional employee benefit at all.

As well as any company sick pay, you could also be eligible for state benefits. But ask yourself if the amount you would get is enough to cover your essential outgoings each month.

Then there are other sources of financial help you could use to get by, such as savings or borrowing money from your parents or loved ones.

After thinking about all that, if you’re not sure if you’d have enough money, this is where income protection insurance could step in. It can help give you confidence in the future so you know you’ll have a financial helping hand should the unexpected happen.

Ok, let’s crunch a few numbers. Make a list of what you spend each month, including the type of everyday bills you would need to keep on paying.

Look at your total outgoings and ask yourself ‘are these essential?’. For example, if you really needed to, you could probably cancel your TV subscription, but your landlord or housemates will still need you to pay the rent. And then there are things like utilities, the weekly food shop, your phone, car finance or credit card bills.

Remember, income protection isn't designed to cover your full salary. Most income protection policies cover a proportion of your salary up to a specific limit, while some policies will offer a small guaranteed monthly amount.

Start early to save money

You may wonder if you’re too young to get income protection, but now could be the ideal time because it might cost you less. As you get older, you’re more likely to suffer illness, so the cost of income protection increases. And if you have a history of illness the price could increase even more, or you may not get cover at all. If you apply when you're young and healthy, getting income protection insurance will tend to be cheaper and you're more likely to be accepted.

Plus, if you take out an income protection policy with us, you'll have access to benefits from day one of your policy at no extra cost, that can help you manage your health, through the Aviva DigiCare+ app. Provided by Square Health, the app provides you and eligible family members access to a range of health and wellbeing services including an annual health check, private GP appointments, mental health support and physiotherapy. The services are provided by Square Health and other carefully selected third party providers.

Please be aware that Aviva DigiCare+ is a non-contractual benefit and doesn't form part of your cover, these benefits could change, or be removed, in the future. Terms and conditions, residency restrictions and the privacy policy for Aviva DigiCare+ can be found within the app. Of course, the main reason for taking out a policy with us is financial protection, you shouldn't take out a policy for Aviva DigiCare+ alone.

The not so small print

So, let’s break down exactly how income protection works.

If you make a successful claim, you’ll get fixed payments each month to help cover some of your outgoings if you can’t work because of illness or injury. It doesn’t cover you if you’re made redundant or are unemployed.

Depending on the policy you have, these payments will carry on each month for a set amount of time (known as a payment period), until you’re well enough to go back to work or until the policy ends.

And with many income protection policies, it can continue to cover you once you've returned to work, meaning you can claim again if your illness comes back or you develop something new. You can make as many claims as you need to until the policy ends.

When you take out an income protection policy, you’ll normally get the chance to pick how much money you’ll get if you claim, how long your policy lasts for and how long the deferred period is. However, check the details of your specific policy to see if there are any limits or restrictions to this.

A deferred … what?

You may not need payments straight away. A deferred period allows you to set how long after you become ill or injured before any claims payments start. You can choose a set amount of time ranging from four to 104 weeks.

Picking a longer deferred period could reduce the amount you have to pay each month in premiums. But it also means you must wait longer to get your first payout if you make a successful claim.

So, to decide what deferred period is right for you, think about how long you could wait. Let’s look at an example. If your employer pays sick pay for four weeks, you might decide to make your deferred period four weeks. This means you’ll start receiving your income protection payout once your company sick pay has run out.

Who decides when you can’t work?

Income protection insurance pays out if you’re unable to work because you’re ill or injured. However, every insurer has their own definition of what 'incapacity’ is. All our income protection policies give you ‘own occupation’. This means we’ll pay out if you can’t do the type of job you have at the point of making a claim.

There are other definitions, which some insurers may use, but these might come with extra conditions. For example, a ‘suited occupation’ definition means you’ll only receive a payout if you're unable to work in any role you may be suitable for based on your skills, qualifications and experience. Or you may only be covered if you can’t do certain things, such as climbing the stairs without help.

Just a reminder, income protection insurance policies have no cash-in value at any time, and if you stop paying your premiums, your cover stops, and you get nothing back.