Income Protection | Haven Financial Solutions

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Income Protection (or sick pay cover), is a policy that pays a monthly amount if you are unable to work due to an accident, illness or injury.

The purpose is to replace as much of your income as possible or is required in order for you to meet your basic monthly bills (mortgage/rent, council tax, food, utilities etc.)

Income Protection differs from Critical Illness Cover because Critical Illness Cover pays a lump sum upon diagnosis of a specified illness (each critical illness policy has a list of conditions covered). Whereas Income Protection has no pre-set list of conditions but instead relies upon whether you are able to continue in your job. There are various definitions of this (from own occupation, suited occupation, and any occupation), which is why we recommend speaking to a specialist to ensure you have the correct policy with the most favourable definition for your job.

Income Protection is typically set up with a policy term lasting until your intended retirement age (up to a maximum of age 70-75 depending on the provider). And there is typically a "deferred period" which means a waiting period that you need to be off work before you can claim. This can be anywhere from 1 week to 1 year.

Typically, the longer the deferred period, the cheaper the policy. A commonly chosen period is 1-3 months (depending upon a person's level of savings or how long their employer's sick pay lasts).

The maximum amount of cover available with most insurers is circa. 60% of a person's gross (pre-tax) income. For self-employed / business owners, this can include dividends and P11d benefits in most cases.

When considering which insurer to use, often an insurer's additional benefits may make the difference.

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For example:

Royal London - They provide the most comprehensive fracture cover currently available at no additional cost. And it covers all amateur sports.

LV - They provide the most comprehensive level of children's cover as part of their income protection policy. Most insurers do not include this, so it is excellent for those whose income would be affected if their child were to be unwell.

Aviva - They provide their clients with access to their DIGICARE service which gives their clients a regular free home health testing kit to monitor levels such as the risk of diabetes, high cholesterol and gout, and your liver, kidney and bone health.

There are three main types of Income Protection available:

Full Term Cover:
This is the most comprehensive type of protection, and will payout from the end of your waiting period (e.g. 8 weeks) until the end of your policy (e.g. Age 68). If you recover and return to work but later suffer a further illness or a recurrance of your previous illness then you can claim again.

With this cover the premium is typically "guaranteed" meaning once you have been accepted and cover is live, the premium will remain the same through the term of the policy. Effectively securing it for the remainder of your working lifetime (as long as you continue to pay the policy). That said, it is often common to index-link (or inflation-link) the policy to ensure that it maintains it's value over time. Especially given the current inflation climate.
Budget Cover:
This is designed for those who cannot afford full cover, and typically will limit the term of any claim to between 1-2yrs (although some policies will go upto 5yrs per claim).
The purpose is to provide short-term income.
Personal Sick Pay Cover:
This is popular with tradespeople or those who have a large element of manual work in their day-to-day activity. It is typically a cheaper option than full term cover as the policy is "agerated" meaning the premiums will increase as a person gets older. It is often used when a person working in a manual role later intends to switch to a more managerial role, and therefore (subject to application) can change to a fixed rate policy when their role changes in the future.

Please note for these insurance products, terms and conditions apply. This information is a summary only. You will receive a full policy document upon application. This policy will set out the terms, conditions and limitations of cover provided under the plan.

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