Income protection insurance deferred periods explained
When you apply for income protection insurance you will more than likely come across the term ‘deferred period’. This is a term the is used to describe a standard option with most income protection insurance policies.
Here we explain what a deferred period is and how it works, so you can hopefully choose the right option for you.
There are several other options that you’ll need to consider when buying income protection insurance, such as:
- Short term or long term income protection
- Guaranteed or renewable premiums
- Personal accident insurance
- Sick pay or guaranteed acceptance cover
- Individual or Executive income protection
- Monthly or Annual premiums
You can click on any of the links above to read more about how each of these different types of income protection options works.
What is income protection insurance?
An income protection policy pays out a monthly lump sum to replace your income if you are unable to work due to illness or injury.
There are many reasons why someone might need time off work because of sickness, injury or an accident. This type of cover means that you won’t lose out financially or struggle to pay your bills while you’re unable to work.
What is an income protection insurance deferred period?
The term deferred period for income protection insurance basically refers to the initial delay period before your claim will be paid. It is essentially a waiting period and you can decide how long this period of time will be.
You have the option to select your own deferred period from 4 weeks to 12 months to fit your own budget and needs. Most income protection policies that are purchased in the UK are set up with 4 or 8 week deferred periods.
A deferred period allows you to set up your income protection policy aligned with your employment sick pay period or your savings.
The easiest way to explain deferred periods, is basically the amount of time (weeks or months) before you claim will be paid out after you were last in work. Longer deferred periods also mean cheaper premiums, because there is less risk of claim to the insurer.
Mary has an income protection policy with a 4 week deferred period because she gets 1 month sick pay from her employer.
Monday 20th March – Mary is in a car accident and suffers a serious back injury. Her doctor signs her off work for 4 months for treatment and recovery.
Saturday 1st April – she submits a claim to her insurance provider with the required evidence and information.
Monday 17th April – Mary’s claim would start to pay out for the remaining 3 months until she was fit to work again.
How many deferred period options do I have?
There might be slight differences from one insurer to another but as a rule the options are from 4 weeks up to 12 months.
Here are the most common options:
- Day 1 (some insurers will allow instant pay out cover but these can be expensive)
- 4 weeks (most common option)
- 8 weeks
- 13 weeks
- 6 months
- 12 months
If you’re not sure if income protection is right for you, you can read more in our guide ‘Do I need income protection insurance?’.
Why do I need a deferred period on my income protection?
A deferred period on your income protection insurance is for your benefit and means that your policy suits your circumstances.
You can take out cover with a Day 1 deferred period which will effectively pay out from the date that you claim. This is the closest thing to having no deferred period on your income protection insurance policy.
The purpose of a deferred period is to make sure that you don’t claim on your policy when you don’t need it.
Are all insurers deferred periods the same?
There are sometimes slight differences between insurer deferred periods, but typically they are all fairly similar.
Some insurers will offer a Day 1 option as we have mentioned above, but this can be expensive and generally isn’t necessary. Some insurers also work in months rather than weeks, so you might see:
- 1 month
- 2 months
- 3 months
- 6 months
- 12 months
This is purely just to make it easier for some insurers to calculate and pay out claims.
How much do deferred periods cost?
Generally, as you go up the scale of your deferred period getting longer then your premiums will reduce. As a rule shorter deferred periods will cost more than longer deferred periods, so 12 months will be significantly cheaper than 4 weeks.
This is purely because people are far more likely to claim and will claim more often on a 4 week deferred period policy than a 6 or 12 month policy.
Statistically, you are more likely to suffer an illness or an injury that prevents you from working for 1 to 3 months. Some of these shorter term claims can be for mild to moderate musculoskeletal problems and less severe mental illness.
What is the best deferred period for me?
There are a few things that you should consider to choose the best deferred period for you and your family.
Here are just a few things to think about:
- Sick pay period (employed) if you’re employed then your employer may pay you full or half sick pay for several weeks or even months. Some civil servants and public sector workers, such as teachers or nurses can have up to as much as 12 months sick pay in their contracts of employment.
- Savings (employed and self employed) you might also have savings or a rainy day fund that will pay your bills and outgoings for several weeks or even months if you can’t work. You should also consider if you needed to make multiple claims and how would this last if you needed to have more than one period off work.
- Partner or other household income (employed and self employed) some households will have more than one income or other sources of income, such as rental income. This income should continue while you are unable to work in most instances.
How can I get advice about income protection insurance deferred periods?
Often, the best way to get advice about the best deferred period on your income protection insurance is to speak to a recommended insurance specialist.
There are lots of ways to get a quote for income protection insurance by using price comparison websites or contacting an insurer direct. These might not offer advice and be able to tell you which options are best for you.