Coronavirus: Will income protection cover me?

The coronavirus (COVID-19) pandemic is putting thousands of UK jobs at risk. If you’re worried about being out of work for a while, either because you could fall sick or your business might be forced to close, income protection insurance could help.

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How does income protection work?

Income protection insurance promises to pay a percentage of your typical wage if you ever become too sick or injured to work. For a monthly fee – usually around 1-2% of your salary – it gives you peace of mind that you’ll be able to pay the bills if your income suddenly stops.

It’s typically available to both employed and self-employed people. Some income protection policies will even let you add involuntary unemployment cover to your policy. That way, you’re not just covered in the event of illness or injury, you’re also covered if you’re made redundant.

Will income protection help if you catch COVID-19?

If you have income protection insurance, you should be able to claim on your policy if you catch COVID-19 and are out of work for a while.

Even if you buy a policy today, you might still be covered for COVID-19 if you catch the disease in a few weeks. But don’t just assume this – it’s really important to check the individual policy before you sign up.

What do I need to know about income protection policies?

The key thing to know is that most income protection policies have a waiting period for illness. This means you have to wait a set length of time between when you stop working and when you can make a claim. You won’t receive any money during the waiting period, and it won’t be backdated.

Waiting periods can vary from between 3 and 12 months for long-term policies or between 1 and 4 weeks for short-term policies. Some short-term policies provide cover from day one of absence. And sometimes you can customise your waiting period (the longer you make it, the lower your premiums).

The Association of British Insurers says self-isolation will probably only be covered for day-one or one-week waiting periods.

And even then, it adds, self-isolation is only likely to be covered if you’ve been advised to do so by a medical professional. If this isn’t the case, you’re “unlikely to be covered unless symptoms are severe and continue beyond the waiting period”.

What if you’re made redundant because of COVID-19?

Some income protection insurance policies include redundancy cover. In this case you may be able to claim in the event you lose your job or your business has to close because of coronavirus.

However, redundancy cover has some key restrictions. First, you must serve a no-claims period. This is the length of time from when you buy your policy to when you become eligible for benefits. Typically, this is six months.

During this no-claims period, your employer can’t give any indication that redundancies or closures may occur, otherwise the redundancy cover is void. There is also a waiting period from when you lose your job to when you can claim benefits, usually 28 days.

That means if you bought your policy today, you’d have to be safely employed for at least six months before your policy has value. There would also have to be no indication that your employer is planning to make redundancies. If you were made redundant after six months, you’d have to be out of work for 28 days before you could claim for redundancy benefits.

Is it too late to get income protection insurance?

No. It’s not too late to get income protection insurance. But bear in mind that some providers may have stopped selling new policies or have added coronavirus exclusions to certain waiting periods. So it might take a bit of time to find the ones that do, and the situation is quickly changing.

Of course it may still come in useful at a later date. So if you have been thinking about getting income protection, there’s no harm in doing it now.

But be completely open and honest with your insurer. Tell it if you have any international travel plans within the next year, for instance, so it can assess your potential exposure to coronavirus.

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What do the insurers say?

As of 7 April, L&G and Cirencester said they will only consider self-isolation claims if you’ve been medically advised to do so as a necessity. All other insurers won’t accept claims for self-isolation.

AIG says it will decline any new policy if you have any signs of coronavirus. Cirencester has removed fracture cover, hospitalisation and severe injury cover from new policies, while The Exeter has placed a 12-month exclusion to any new customers with all respiratory conditions or symptoms of them.

Holloway has said it won’t accept anyone who is currently considered ‘furloughed’ (ie on 80% pay covered by the UK government). And Shepherds has added restrictions on all respiratory conditions in new policies and introduced specific wording about what is and isn’t covered.

What are my other options for financial help during COVID-19?

Regardless of whether income protection insurance is right for you, there are other ways you can seek financial support if you’ve been affected by the coronavirus pandemic.

If you’re worried about unemployment, or if you’ve already lost your job, you may be able to take a break from bills. Some mortgage providers are offering payment holidays, while some banks are offering bigger overdrafts.

Anyone out of work who is aged 18 or over, under state pension age and with less than £16,000 in savings should be eligible to claim Universal Credit.

For more advice on benefits, contact Citizens Advice. And if you need any help with debt, get in touch with StepChange.