Income Protection Insurance – what if you were no longer able to earn?

NHS doctors are eligible for certain benefits in the event of being unable to work due to injury or ill health.  Doctors typically receive sick pay of full pay for six months, then half pay for a further six months.  After these twelve months have passed, things are a little less certain.  If the illness is permanent and will prevent you from ever returning to work, it is possible to apply for ill health retirement.  However, if there is a possibility of recovery there are no further benefits payable and you would be left without an income.

This gap is a concern for many doctors.  Doctors can be high earners but also often have large financial commitments such as a mortgage and family to support.  In the early stages of their career doctors might have relatively little savings to fall back on.  Those who are nearer to retirement may have accumulated more in the way of savings and investments; however, dipping into them early in the event of illness means running down the amount available for retirement.

Income Protection Insurance is a way of covering this gap and maintaining your financial security.  It is a form of insurance that pays a regular income to replace your earnings in the event you become unable to work due to ill health or injury. 

How Income Protection Insurance Works

In the event of long term illness, Income Protection Insurance pays a regular income until you retire or are able to return to work if sooner.  You can set up the policy with a deferred period of 12 months so that the benefit starts after NHS sick pay stops.  The benefit is not taxable and so is intended to match you take-home pay, i.e. after tax. 

When you set up the policy you specify the policy term, usually until retirement age, and can claim as many times as you need to while the policy lasts. 

A monthly premium will be payable for the cover.  You must continue to pay these premiums for the policy to remain in force.  The cost will depend on your age, health and lifestyle (e.g. whether you smoke), and the amount of cover you want.  It is important not to over-insure; as mentioned above, the insurance is intended to replace your take-home pay.  Insurers won’t pay out more than around 50-60% of your usual (pre-tax) earnings.  Even if you are paying for cover of £4,000 a month, if in the event of a claim the insurer judges you only require £2,000 a month to take you up to 50-60% of your lost earnings they will pay out the lower amount.  This is because they do not want you to be better off out of work as this might delay your return to work and hence increase the length of your claim. 

Getting Income Protection Insurance

There are various income protection providers and it is important to compare the costs across the market and also the level of cover, as different providers have their own definitions of incapacity.  It is important to check the range of illnesses and injuries covered as this will affect both the cost of the policy and whether the policy is sufficient for your needs.

With income protection, everything depends on getting the right policy.  As independent financial advisers we can advise on everything from the level of cover to the provider to use to make sure you take out a plan that matches your personal needs.  For more information please contact Richard Higgs CFP FPFS on 0117 966 5699 or

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