What is a deferred period for income protection?

In terms of income protection, the deferred period refers to the period of time between your first sick day and when your payments begin.

It’s a fixed period of time that will need to pass in order for you to receive your monthly income protection payments.

This can also be known as a ‘waiting period’ or ‘excess period’.

These terms can have different meanings depending on the type of insurance you’re taking out.

In this article we’ll be focusing on what an income protection deferred period is, how it works and how long it could be.

Keep reading to find out everything you need to know about an income protection deferred period…

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Your deferred period, along with many other policy details will be chosen at the point of application.

Why not have help and guidance throughout the whole application process by enlisting the help of an expert, such as Reassured Advice?

You’ll have the ability to ask all the questions you need and gather all the information required to find your ideal income protection policy.

And the best part is, cover starts from as little as 20p-a-day ‡ .

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What is income protection?

Income protection is cover that will pay out to you if you’re unable to work due to illness or injury

Depending on the provider, between 50% and 70% of your usual income can be paid out to you in monthly (tax-free) instalments

These payments can help you to keep up to date with essential daily living costs such as mortgage or rental payments, household bills, childcare costs, transportation costs and much more

Allowing you and your family to continue living comfortably, with minimal financial disruption

You can contact a friendly member of our team to start your journey today. You can compare quotes and find the best deal on a policy that meets all of your needs
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Is there a waiting period for income protection?

Yes, you’ll set a ‘waiting’ or ‘deferred’ period when taking out an income protection policy.

The type of policy and your chosen provider can have an influence on how long your deferred period will be.

For example, for long term policies, many of the UK’s leading providers (such as Aviva and Royal London) offer deferred periods as short as 4 weeks and as long as 52 weeks.

Whereas it can be possible to secure a shorter deferred period with a short term policy.

In some circumstances it’s also possible to have a deferred period as short as 3 days. This is known as a back-to-day-one deferred period.

You’ll be able to make a claim after not being able to work for 3 days and payments will be backdated to your first sick day.

Why does there need to be a deferred period?

Unlike other types of insurance, income protection won’t pay out to you straight away. Instead, you’ll need to wait for your deferred period to pass.

The deferred period is often needed as a lot of illnesses or injuries can result in a speedy recovery, in which case a claim won’t need to be made.

Insurers also won’t pay out to you if you’re still receiving sick pay from your employer.

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How does a deferred period work?

An income protection deferred period works as simply as:

  1. Apply for income protection - You can do this directly through a provider or a broker service, like Reassured Advice
  2. Set policy details - During the application process you’ll come to an agreement with your advisor about the best deferred period for you. This information, along with whether you want short or long term cover, your premium payment type and your definition of incapacity will be added to your policy terms and conditions
  3. Cover commences - Once your application has been accepted and set up, with your agreed terms, you’ll be covered in the event you can’t work due to accident or sickness. You’ll need to keep up with your premium payments to keep your cover valid
  4. Make a claim - If you develop an illness or injury that prevents you from working, you can make a claim with your provider
  5. Wait for your deferred period to end - If you’re still unable to work after your deferred period has come to an end, your income protection payments will begin. They will then continue until one of the following:
    - You make a full recovery and return to work
    - Your payment period comes to an end
    - Your policy expires
    - You retire

Reassured Advice can provide help and guidance throughout the whole application process, allowing you to ask any questions you need.

This way you can have peace of mind that your policy is exactly what you need.

How long should my deferred period be?

At the point of application you’ll be able to choose your deferred period.

The length of the deferred period is likely to vary from person to person and will be based on your unique circumstances, as well as what’s offered by your chosen provider.

During your deferred period you may need to rely on other forms of finance to keep you afloat financially, so it’s important to consider:

Do you receive sick pay?

If you receive sick pay from your employer, this benefit will provide much needed financial help while you’re off work.

However, it’s important to be aware of how long your sick pay lasts for and how much you’re entitled to.

If you don’t receive sick pay, you’ll likely want to consider any other income or forms of finance available to you (this could be from savings, a second job, from company dividends or from a spouse) and how long this would last while covering all essential costs.

Typical deferred period lengths

Common deferred periods offered by UK providers include:

  • 1 week
  • 2 weeks
  • 4 weeks
  • 8 weeks
  • 13 weeks
  • 6 months
  • 12 months

How long do you receive sick pay for?

Finding out the details of your sick pay benefit can be essential. For example, if your employer offers statutory sick pay, this will last for 28 weeks - meaning a 6 month deferred period may suffice.

However, if your employer has a company sick pay scheme, the length of time you receive sick pay for may vary depending on what your employer offers.

Finding out exactly what you’re entitled to can allow you to set your deferred period accordingly.

Do you have savings?

If you don’t receive sick pay or are self-employed, it’s likely you’ll need to rely on your own savings while you’re unable to work.

Are you part of the 13% of the UK population that currently have no savings?[1] If so, it’s likely you’ll want to set a shorter deferred period to avoid any financial struggles.

For those that do have savings, you’ll want to work out how much you have and how long it’s likely to last you.

Alternatively, if your savings were intended for something else (perhaps a house deposit, holiday or new car) you may also want to choose a shorter deferred period to avoid having to dip into these funds.

How much income protection insurance do you need?

Enter your monthly financial commitments to understand the level of income protection cover you require.

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£723 a month is the average monthly mortgage payment in the UK, with the average monthly rental price coming in at £700.

The majority of our monthly income will go towards rental or mortgage payments.

For this reason, it’s essential to have precautions in place to ensure you could keep up to date with your payments if you weren’t receiving your usual income.

Monthly income protection payments can help to cover this large expense and ensure you can stay in your home.
£
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According to the Money Advice Service, the average household spends £340 a month on household bills.

This includes electricity, gas, TV and broadband.
£
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Childcare costs are on the rise with it now costing £137.69 per week for part-time nursery for a child under the age of two.

That’s over £550 per month - is this an amount you’d be able to keep up with if you were unable to work?

Becoming ill could also result in the need for additional childcare while you attend doctors’ appointments or medical treatment.
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The average household in the UK spends around £97 a week on their food shop, totaling £388 a month.

While this may seem like a small amount in comparison to some of the other expenses mentioned, the food shop is often where we try to scrimp and save when we fall on hard times.

Income protection can take care of the cost of your weekly food shop, as well as many other essential costs.
£
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At the beginning of 2020, credit card debt in the UK was at £2.1 billion, with almost 27 million UK residents in some kind of debt.

Becoming unable to work could make it hard to keep up with credit card or loan payments (including car finance or other financed goods).

Failure to keep up with payments could result in additional interest being incurred or late fees issues - resulting in a higher total needing to be paid.
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The average spent on public transport each month comes to an average of £94.

This includes the cost of public transport, as well as petrol and diesel vehicles.

While this amount may reduce while you’re unable to work as you won’t need to commute there may be additional spending on public transportation if your illness or injury leaves you unable to drive.
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Your total cover estimate

£ 0

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How will the deferred period impact my policy?

Your chosen deferred period will impact your policy in the following ways:

  • When you’ll start to receive your payments
  • How much you’ll pay for your premium

You won’t start to receive any income protection payments until your deferred period has come to an end, so it’s important to choose a deferred period that will match up to when any other available forms of finance you have will come to an end.

Your deferred period also has an impact on how much you pay for your premium.

For example, those with a longer deferred period tend to pay less in premiums than those with a shorter deferred period.

This is because the longer your deferred period, the less risky you appear to the provider.

This isn’t to say you should delay your deferred period to try and save money. It’s important to ensure your deferred period meets your needs so you’re not left struggling financially.

Why not talk your needs through with a friendly member of the Reassured Advice team?

They can help you work out your ideal deferred period while comparing quotes to secure you the most cost-effective deal.

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Hopefully this article has given you an insight into what an income protection deferred period is and how you can set this up.

Why not compare income protection quotes from all of the UK’s leading providers to find a policy that meets all of your needs?

Quotes through Reassured Advice are personalised, fee-free and no obligation.

The best part is, income protection starts from just 20p-a-day through Reassured Advice so why not get in touch?

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Sources:

[1] https://www.independent.co.uk/money/one-in-five-adults-have-less-than-ps100-in-savings-to-fall-back-on-b1865413.html

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