Income protection vs life insurance

Life insurance pays out a lump sum if you pass away during the policy term. Most policies will also pay a claim if you are diagnosed with a terminal illness and are not expected to live longer than 12 months.

It’s there to help provide financial support to your loved ones so they can keep on paying the bills and continue to live how they always have. It could help them pay for the funeral, pay off the mortgage, clear any debts, cover childcare and education costs, or just cover general living expenses. 

You choose how long your policy lasts, subject to the minimum and maximum terms available. With our Life Insurance Plan, once it's finished, your cover will stop and we won't pay out if you die. The policy will also end if a successful claim is made. It's not a savings or investment product and it will only pay out on a successful claim.

Income protection pays a monthly sum if, during the policy term, you can't work because of illness or injury. Depending on the policy you choose and whether your claim’s successful, you’d receive payments until: you’re fit to return to work, for a set amount of time, or until the end of the policy term.

This policy is designed to cover some of your lost earnings, helping you maintain your essential monthly outgoings and carry on living your normal life as much as possible. It's a financial safety net for the other people who rely on your salary too.

With our income protection insurance if you stop paying your premiums or cancel the policy, your cover will end and you won't get any money back. It's not a savings or investment product and will only pay out on a successful claim.

We offer level cover and decreasing cover. The cover you'd choose depends on your particular needs, if the lump sum is to help pay off a mortgage or other financial commitment, or if you're looking to leave a sum for your family to support living costs.

Level cover

With level cover you choose how much cover you want and how long you want to be covered for. You then pay the same monthly premium for the length of the policy.

If the worst happens during the policy term and a successful claim is made, the policy will pay out a lump sum.

You may choose level cover to help your loved ones continue to live how they always have. The lump sum they receive could help them in many ways; from keeping up monthly mortgage payments to paying university fees.

It’s worth bearing in mind that because your monthly payments stay the same, the cover amount won’t go up as living costs rise. You can choose to protect your cover from the effects of inflation, so that the lump sum won’t be worth less in the future, but this may mean a rise in your monthly premiums. 

If you choose to protect your policy against the effects of inflation, the maximum annual increase would be 15% to your premium and 10% to your cover. The cover amount increases in line with the Consumer Prices Index (CPI), calculated over 12 months. To calculate the increase to your premium, we multiply what you pay by 1.5 and the percentage increase in CPI. If there’s no increase in the CPI there’s no change to your cover or premium.

Decreasing cover

With this type of policy, you choose how long you want cover for. The cover amount you have goes down over the length of the term – but the monthly amount you pay stays the same. Because the cover amount goes down in value over time, decreasing cover tends to cost less than level cover. 

You may choose decreasing cover to help your loved ones pay off a repayment mortgage or a long-term loan. Because of this decreasing cover is also sometimes known as mortgage protection insurance. The value of what you’re paying off gradually decreases over time, and so does the cover. 

Income protection policies pay out a monthly amount, which you select when taking out the policy. It pays out if you are unable to work due to injury or illness. It is not an unemployment benefit.

You can make as many claims as you need to within the policy term, but you’ll need to wait for a pre-agreed time, known as a deferred period, before you can start receiving your pay-out. You’re able to choose how long this deferred period is when you first take out the policy.

There are certain factors that can affect the protection you get and the premium you’ll pay: 

• Job
• Age
• Medical history
• Time you have to wait before you can get a pay-out
• How much of your income you want covered
• How long you want to be covered for.

The riskier your job or the older you are when you take out a policy, the higher your premium will be. You can also apply for a plan with benefits that protect you from the effects of inflation – though your premiums may rise.

How your insurer defines your inability to work will affect when your policy pays out. Every policy has a definition of 'incapacity’, so look out for this. Those offering ‘own occupation’ will pay out if you can’t do the job you have at the point of making a claim. Aviva’s income protection insurance only offers ‘own occupation’ cover. 

Yes, of course you can.

However, remember that, while both products are designed to offer financial protection, they provide different types of cover and pay out in different circumstances.