The insurance company that runs our workplace pension scheme has circulated information about income protection recently and we’ve been invited to speak with someone from the company via video call if we are interested. I understand that this type of cover might be useful but am worried that there will be some loophole that the insurer will find to avoid paying out. How can I be sure that it’s worth spending the premiums?

North Norfolk News: Diane Fish, mortgage and equity release adviser with Smith & PinchingDiane Fish, mortgage and equity release adviser with Smith & Pinching (Image: Smith & Pinching)

Diane Fish of Smith & Pinching responds:

There is a general misconception that insurers will only pay out on a protection policy if they absolutely have to and that they will use whatever excuse they can find to avoid doing so. Frankly, this is not my experience, and the figures of actual claims and payments support my view.

However, when you take out this type of cover, it is absolutely essential that you are completely honest and don’t hold back any information that might later prejudice your claim. For example, with any insurance of this kind (Life, Critical Illness, Income Protection), if you have the occasional cigarette on high days and holidays, then you must declare this. Premiums for smokers are higher than for non-smokers.

With income protection insurance, you will be covered for any qualifying period when you are unable to work for health reasons, irrespective of what illness or injury you may be suffering. This applies to those suffering with their mental health as well as their physical health.

The key to qualifying for a claim is that you are not able to work for a continuous period after the initial waiting period. Normally, policies do not cover 100pc of your income – they are capped at a maximum of 65pc. Some policies will cover you for only 12 to 24 months: these tend to be at a lower premium than those that cover you for the full term of the policy, which could be up until your retirement age.

Two of the big insurers have recently published figures which show a significant increase in the amount they have paid out on income protection claims in 2020 when compared to 2019, including cases relating to Covid-19.

I recommend that you seek independent advice if you are considering an income protection policy. Premiums and terms do vary so it is important to understand what you are getting for your money. Policies can be set up with different parameters, such as the 'waiting period' – the period of being unable to work before a claim can be made – to suit your individual circumstances and your employer’s sick pay arrangements.

This is a marketing communication. Any opinions expressed in this article do not constitute advice.

For more information please visit www.smith-pinching.co.uk