Income Protection Insurance: Caveats & Restrictions

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Article published on 12th July 2008

The amount of money that a policyholder will get from his or her Income Protection Insurance is limited, generally speaking, to a percentage of the policyholder's usual income - so you won't get the same amount from your policy as you would get from actually working.

The cap is usually about 70% of your gross earnings (before any expenditures on tax or whatever), but this percentage can often be less for those with high incomes. State benefits, if you are eligible for any, and benefits from any other insurance policies you might have will also likely reduce the maximum amount of money you will get from your Income Protection Insurance policy.

It's also worth noting that there will be a deferred period before you will start to receive your Income Protection Insurance payments - so there will be a gap between you making a valid claim on your policy and the start of your benefit payments. The length of time of this deferred period has a considerable effect on the overall cost of the policy's premiums - generally speaking, the longer the deferment period the lower the premiums.

Many insurance companies will pay a reduced benefit to policyholders who get part time work after recovering from their health. This is in an effort to 'encourage' policyholders to find fulltime work more quickly.

Finally for this article, an IPI policy will be only apply while the policyholder remains as a resident within the territories stipulated within the contract. So for British income protection insurance policies, this will usually include the UK and the EU, although it could apply to any country in Western Europe and sometimes even the USA and Canada or indeed any 'developed' country.

The vast majority of income protection insurance policies allow for holidays and temporary residences outside of the designated territories of the policy.

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