Income Protection Insurance: Further Restrictions

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Article published on 13th July 2008

Most Income Protection Insurance policies do not pay out to the policyholder if he or she cannot attend work for reasons other than an accident or an illness. So if you are looking for redundancy cover, be sure to discuss this specifically with your insurance provider before signing up for an IPI.

The Deferment Period before payments start can be quite a long time, often between 4 weeks at the minimum and 52 weeks at most. As mentioned in our previous article, the longer this deferment period the lower the premiums tend to be.

Most policies will not permit payments for loss of income due to illnesses and accidents that are caused by deliberate self harm, alcohol abuse, drug abuse, criminal activities, pregnancy (as you should normally get statutory maternity leave with pay) or because of a war in the region where the policyholder lives and works.

The maximum regular payment from an Income Protection Insurance policy will not usually exceed the policyholder’s normal level of income because this is deemed to reduce the incentive of the policy holder to return to work once they regain their health (or whatever).

If the policyholder changes his or her job or becomes unemployed, the insurer may require higher premiums to reflect the greater risk to its interests or indeed the whole policy may become invalid.

As the benefits from an Income Protection Insurance policy are tax free, it is often the case that while claiming on such a policy tax relief in other areas of your life may be reduced. So pensions will not retain their tax free status while claims on an IPI are being made.

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