Different types of income protection policy
There are two types of policy that will protect your income if you're unable to work due to illness or accident:
Long Term Income Protection
This type of policy pays out until a fixed age, death or your return to work. It's underwritten at the point of applying for the policy, rather than when you put in a claim. This means you'll know exactly what you're covered for from day one, as well as any pre-existing conditions you're not insured for.
Short Term Income Protection
Like long-term income protection, this type of policy is fully underwritten when you take out the cover. However, rather than pay out until death or retirement, short-term income protection (STIP) has a fixed maximum payout period of between one and five years. Due to the smaller timeframe, premiums for this type tend to be cheaper.
Guaranteed vs. Renewable
The premiums you pay in these policies can be described as either Guaranteed or Reviewable:
Guaranteed Income Protection
The amount you pay stays the same throughout the policy term. The premium will only go up if you increase the cover. Most cost slightly more to start with, but provide you with the assurance that prices won't change.
Reviewable Income Protection
These policies are reviewed by the provider after a set period, typically every five years, at which point the premium is likely to go up. Some insurers reserve the right to increase your premiums with as little as 30 days' notice on a reviewable policy. However premiums tend to start off cheaper than with guaranteed policies.
Different Income Protection occupation groups
Premiums vary according to your gender, occupation, health, whether you smoke and the level of cover you need.
Your job often affects how much you pay for a policy, although some insurers do not differentiate between different occupations. Many insurers group jobs into four categories of risk, though some have more. For example, jobs may be divided into the following groups:
- Class 1: Professional; managers; administrative staff; staff with limited business mileage; admin clerk; computer programmer; secretary
- Class 2: Some workers with high business mileage; skilled manual work; engineer; florist; shop assistant
- Class 3: Skilled manual workers and some semi-skilled workers; care worker; plumber; teacher
- Class 4: Heavy manual workers and some unskilled workers; bar person; construction worker; mechanic
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