What is an income protection deferred period?

An income protection deferred period is the time frame that must pass before your monthly payments commence.

Your deferred period starts from the first day that you’re unable to work (due to illness or injury) and will end once a specified period has been reached.

If you’re still unable to work once your deferred period has come to an end, your payments will begin.

With most UK providers, common deferred periods range from 4 – 52 weeks. You’ll decided upon this during the application process.

When setting your deferred period, it’s important to consider other funds you have available, such as sick pay and/or any personal savings.

An income protection deferred period can also be referred to as a ‘waiting period’ or ‘excess period’.

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

What is income protection?

Income protection can pay out a percentage of your usual income if you’re unable to work due to illness or injury.

Reassured can help you compare income protection quotes from the whole of the market, free of charge, with quotes starting from just 20p a day.

A friendly member of the team will also be on hand to guide you through the application process – including selecting your deferred period.

Benefits of income protection include:

  • Protect between 50% - 70% of your usual earnings
  • Receive monthly, tax free payments
  • Keep up to date with financial commitments if you’re unable to work due to illness or injury
  • Short term and long term protection options available
What is income protection infographic desktop

How does a deferred period work?

An income protection deferred period works as simply as:

Paperwork Application

Apply for income protection - You can do this directly through any income protection provider, a comparison site or through a broker service (like Reassured).

Guaranteed acceptance

Set your policy details - During the application process you’ll come to an agreement with your advisor about the best deferred period for you. You’ll also decide upon other important details such as your policy term and the length of your payment period.

Family Protection

Your cover will commence - Once you’ve decided upon all the important details of your policy, your policy will need to be approved by your chosen provider. Once approved, your cover will be in place. You’ll need to keep up to date with all premium payments to keep your cover valid.

Choice Of Options

Make a claim - If you develop an illness or sustain an injury that leaves you unable to work, you can make a claim on your policy. Your illness/injury must meet the definition of incapacity that’s listed within your policy. Most commonly this is an ‘own occupation’ definition which means you can claim if you’re unable to do your own job.

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Wait for your deferred period to end - If you’re still unable to work at the end of your deferred period, you’ll start to receive monthly income protection payments. These can allow you to keep up with mortgage or rent payments, as well as household bills and other essential living costs.

Essentially, if you have a policy with an 8 week deferred period, you’ll need to wait 8 weeks after you stop working before receiving any payments. You’ll also still need to be unable to work after this time.

If you make a recovery before this period has been reached, no payments will be made.

Reassured can provide guidance and support throughout the whole application process, allowing you to ask any questions you need. Simply get in touch for your free quotes.

What income protection deferred periods are available?

Common deferred periods offered by UK providers include:

  • 1 weeks
  • 2 weeks
  • 4 weeks (1 month)
  • 8 weeks (2 months)
  • 13 weeks (3 months)
  • 26 weeks (6 months)
  • 52 weeks (12 months)

It’s important to be aware that different providers will offer varying options.

For example, with Royal London, AIG, LV= and Legal & General it’s possible to secure a maximum deferred period of 52 weeks.

However, with Aviva it can be possible to secure a policy with a maximum deferred period of 104 weeks (only available with their Income Protection+ policy).

Some providers also offer what’s known as a ‘back-to-day-one’ deferred period which can allow you to claim and start receiving payments within a few days.

Why not use the whole of market comparison service offered by Reassured to compare quotes from all major UK providers and smaller specialists?

How long should my deferred period be?

How long your deferred period should be will depend on your personal circumstances.

Your available budget and what options are offered by your chosen provider can also influence your decision.

There are some key questions you can ask yourself to help determine what’s likely to be the best option for you:

Do you receive sick pay?

Receiving sick pay from an employer allows you to benefit from financial aid for a specified period when you’re unable to work.

However, not everyone receives the same benefits package as some employers will offer a more comprehensive sick pay scheme, while others will simply offer statutory sick pay (which is currently £109.40 per week for up to 28 weeks[1]).

It’s likely you’ll want your deferred period to line up with when your sick pay comes to an end to ensure you’re protected in case of long term illness or injury.

The more generous your sick pay, the longer you could afford your deferred period to be.

It’s essential to understand what you’re entitled to in order to allow your policy to compliment your sick pay schedule, so you may wish to consult your employer or employment contract before securing a policy.

Do you have savings?

If you don’t receive sick pay, you’ll likely want to consider any other forms of income or savings you have and how long this would last you.

Are you part of the 13% of the UK population that currently have no savings[2] or, perhaps you have savings, but they’re intended for something else (such as a new car or house deposit)?

In these situations, opting for a shorter deferred period could reduce the amount of time you may need to rely on your own finances.

What budget do you have?

While considering the above is important, it’s also key to factor in your available budget for financial protection.

As a general rule, the longer your deferred period the cheaper your policy is.

If you’re on a tight budget you could save some money by opting for a longer deferred period. However, if doing this, it’s also important to ensure that you won’t be left struggling financially.

For example, if your sick pay lasts for 3 months and you have no personal savings, it’s not realistic to opt for a 12 month deferred period as you’d need to find the funds to get by for 9 months before you’d receive any payments.

By using the help of a broker, you can compare quotes to find the right policy to meet your needs. Simply contact Reassured today.

How much income protection insurance do you need?

Enter the fields which apply to you to calculate the level of income protection cover you might require to help cover key costs.

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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

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Why does there need to be a deferred period?

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

Having the deferred period helps to avoid unnecessary claims for a minor illness/injury and ensures that the policy only pays out for a long term illness/injury that prevents you from working.

If you have any other questions about income protection, Reassured are happy to help.

A friendly member of the team can answer any questions you may have while helping you find the most affordable quotes.

How will the deferred period impact my policy?

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

  • When it will start to pay out to you - you won’t receive any income protection payments until your deferred period has come to an end. This is why it’s important to evaluate any other funds you have available (such as sick pay and/or savings) so you’re not left struggling financially while waiting for your deferred period to end.
  • How much you pay for your premium – the deferred period is a policy factor that can influence the price that you pay for your monthly premium. Typically, the longer the deferred period, the cheaper the premium.

The table below shows how your deferred period can affect the price that you pay for cover.

Quotes are based on a non-smoker, in good health, with an annual income of £30,000 per year. The policy has a short term payment period (one year) and provides cover until age 65, with guaranteed premiums.

AgePolicy with an 8 week deferred periodPolicy with a 26 week deferred period
20£6.80£5.50
25£7.14£6.02
30£7.83£6.35
35£9.85£6.76
40£12.16£8.34
45£15.87£10.79
50£21.04£14.38

Although your deferred period can influence the cost of your policy, it’s important to be realistic. Setting a long deferred period could leave you in financial stress if you’re unable to work and have no other funds available.

Why not contact Reassured who can help you select the right deferred period to meet your needs?

What is a back-to-day-one deferred period?

A ‘back-to-day-one’ deferred period can allow you to claim after just a few days (most commonly, this is three days).

After this, your payments will be backdated to the first day you were unable to work.

This can be beneficial for those who don’t receive sick pay (such as the self-employed), who also don’t have access to an additional income or savings, and would need to start receiving financial aid as quickly as possible.

However, due to the extremely short deferred period, it’s likely your premiums will be significantly more expensive than with other traditional deferred periods.

It’s also important to note that not all providers will offer a back-to-day-one deferred period.

Compare income protection quotes

Hopefully this article has given an insight into what an income protection deferred period is.

If you need guidance or support selecting your deferred period, or any other aspect of your policy, Reassured are happy to help.

Using the services of Reassured, you can compare income protection quotes from all UK providers.

A dedicated member of the team will also be on hand throughout every step of the application to answer any questions you might have.

All quotes through Reassured are personalised, fee free and completely no obligation.

Start your journey today and secure income protection from just 20p a day.

Sources:

[1] https://www.gov.uk/statutory-sick-pay

[2] 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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