If illness or injury stopped you working, how long could you keep paying your bills? Disability insurance in the UK usually means income protection, a policy that pays a monthly income while you can't work. It is different from life insurance, which pays out on death, and from critical illness cover, which pays a lump sum if you are diagnosed with a listed condition.
What income protection pays
- A monthly income, paid like a salary and tax-free on a personal policy
- After a deferred period, the wait between stopping work and the first payment. A longer deferred period means a lower premium
- A share of your earnings, not all of them, so you keep an incentive to return to work
- Until you go back to work, the policy ends, or you reach the end date, often your planned retirement age
How definitions affect claims
Check how the policy defines being unable to work. An own occupation definition pays if you can't do your own job, while suited occupation or any occupation definitions can refuse a claim if you could do other work. Read the definition before you look at the price. Answer health questions fully, because policies often exclude pre-existing conditions or add exclusions after underwriting.
What you already have
Check what support you would get without insurance. Statutory Sick Pay is the lower of 80% of your average weekly earnings or £123.25 a week, for up to 28 weeks, and many employers pay more, so check your contract. After that, state benefits are limited and often means-tested, which is the gap income protection is meant to fill.
Self-employed people get no sick pay at all, so income protection can matter more for them. Policies for the self-employed tend to look at average profits over recent years rather than a salary.
Disability insurance and cars
Searches for disability insurance car cover usually mean one of two things. If you drive with a medical condition, you must tell the DVLA about conditions that affect your driving, and you should tell your car insurer, because failing to disclose can invalidate your cover. If you use the Motability Scheme, which lets people who receive certain disability benefits lease a car, insurance, servicing and breakdown cover are included in the lease. Neither is the same as income protection, which replaces lost earnings.
Choosing
- Work out the essential monthly costs you would need to cover.
- Match the deferred period to your sick pay and savings.
- Check the definition of being unable to work.
- Compare policies for the same benefit and the same deferred period.
If you also want cover for your family if you die, see our guide to term life insurance.