How long will income protection pay you for?
Income protection can pay out for one, two or five years, or you can choose long-term cover that may keep paying until you return to work or the policy ends.
The longer you want a claim to be paid, the more the cover will usually cost.
What is the benefit period?
The benefit period is the maximum length of time an insurer will pay an individual claim.
Typical options include:
| Type of cover | Typical payout period |
|---|---|
| Short-term cover | 1, 2 or 5 years |
| Long-term cover | Until recovery, retirement or policy expiry |
If you had a two-year benefit period and remained unable to work, the insurer could pay for up to two years.
With long-term cover, payments can continue for many years if you remain unable to work and continue to meet the policy conditions.
For more information on the differences, read our guide to short-term vs long-term income protection.
When do payments stop?
Income protection payments normally stop when one of the following happens:
- You recover and return to work.
- You no longer meet the insurer’s definition of incapacity.
- You reach the end of the benefit period.
- You reach the policy end date or selected retirement age.
If you have a five-year benefit period but return to work after eight months, payments would normally stop at that point.
Likewise, if you have a two-year benefit period and remain unable to work after two years, payments would usually stop even though you were still unable to work.
What is the difference between the benefit period and deferred period?
They are two separate things.
The deferred period is how long you wait before claim payments start.
The benefit period is how long those payments can continue once they have started.
For example, you could have a 13-week deferred period and a five-year benefit period. You would wait 13 weeks before payments began, and the insurer could then pay for up to five years if you remained unable to work.
For more information on choosing how long to wait before payments start, read our guide to income protection deferred periods for company directors.
What happens when a short-term policy stops paying?
If the maximum benefit period ends while you are still unable to work, the insurer stops paying the claim.
You would then need to rely on other financial resources, such as personal savings, company reserves, investments or income from elsewhere in the household.
This is the main drawback of short-term cover. It normally costs less than long-term income protection, but you could be left without insurance payments if an illness or injury keeps you away from work for longer than the chosen benefit period.
Can long-term income protection pay until retirement?
Yes, potentially.
Long-term income protection can cover an illness or injury that keeps you away from work for several years.
Payments may continue until you recover, reach the selected retirement age or the policy ends, provided you continue to meet the insurer’s conditions.
Because the insurer could potentially pay a claim for many years, long-term cover will usually cost more.
For more information on the factors that determine the premium, read our guide to how much executive income protection costs.
How long should company directors choose?
Short-term cover may be enough if you have savings or other income you could rely on once the payments stop.
If being unable to work for several years would cause you serious financial problems, long-term cover gives you more protection.
As a company director, think about the business too. How long could it keep paying you if you weren’t there generating income?
For more information on working out the level of protection you need, read our guide to how much executive income protection you need.
Does executive income protection work differently?
The benefit period works in broadly the same way, but with executive income protection the claim is normally paid to the limited company rather than directly to the director.
The company can then use the proceeds to continue paying you while you are unable to work.
For more information on how payments are treated, read our guide to executive income protection tax.
You can also read our comparison of executive vs personal income protection.
Which benefit period should you choose?
Think about what would happen if you were still unable to work when the insurance payments stopped.
If you have enough savings or other resources to support yourself after one or two years, short-term cover may be sufficient. If you don’t, long-term cover provides protection against the risk of being unable to work for several years.
A specialist IFA can help you compare short and long-term policies, answer your questions and find cover from leading providers that suits your circumstances.