There are a wide range of factors that can have an impact on the cost of income protection, which is one of the reasons why online quotations can be extremely misleading. The information below is designed to give you an insight into some of the primary topics that will need to be considered before you can work out what an income protection policy would actually cost you. Realistically, it is almost impossible to do this without the assistance of an income protection advisor.
Occupation Class (Risk)
Insurance companies categorise people into different occupation risk classes, depending on what they do for a living. The risk increases as you move through the range, which can be up to nine risk classes, depending upon the insurer and there is a consequent increase in premiums with the increasing risk. Some insurance companies publish information that is examples of certain occupations with the corresponding risk class, however, this can be extremely misleading as often, job titles may provide a very poor description of a the daily duties that are carried out and it is this that will actually determine which risk class is appropriate.
Driving for business purposes is viewed as a relatively risky activity by income protection providers and if you exceed pre-set annual limits it is normal for you to be classified in higher occupational risk class, which can have a significant impact on monthly premiums. Individual insurers set different annual mileage limits, so it is sensible to discuss this with an advisor if your occupation involves driving for business reasons.
Weekly working hours
The number of hours that you work each week has an impact on how insurance companies view your risk profile, so if your job regularly involves working significantly more than 40 hours per week it is likely to increase your premiums, or in extreme cases, could even lead to insurers declining to offer cover.
As with most personal insurances, age has a significant effect on the monthly premium, so for most insurance companies it is much cheaper to take a policy out when you are younger. However, if you take out an age costed premium there is no advantage, as it will increase as your age increases.
Income protection is very similar to Life Insurance, in that smoking tends to increase the cost by a very large amount but it is important to always be honest with insurance companies in this regard as it is relatively simple for them to carry out tests to check this. There is a handful of income protection providers that do not increase premiums for smokers, so if you are considering income protection and a smoker you should disclose this to your adviser and they can consider this when they carry out research.
There are a wide range of medical conditions that can cause income protection premiums to increase, as you would expect. Some insurance companies are more lenient with certain medical problems than others, so this is one area where it is absolutely essential to take expert advice if you want to find out the best available ACTUAL premium, rather than the often optimistic prices shown online.
Annual indexation increase
This is covered in much more detail elsewhere on the website but in simple terms it can have an absolutely enormous impact on the overall cost of your income protection policy. To give an example, the annual indexation method can mean the difference between paying £43 per month or £130 per month at the end of your policy where both starting premiums were exactly the same!
If there is something in your background that an insurance company views as too risky to cover under an income protection policy, they may choose to offer you cover but with an exclusion for that one area. This generally applies to pre-existing conditions such as back problems, where a spinal exclusion should be expected. (It is worth mentioning here that some insurers would only exclude the problem part of the spine rather than the full spine) The majority of insurers impose exclusions with no impact on the monthly premiums but there are some that reduce the monthly premium to reflect the fact that the policy with exclusions is not as comprehensive as one without, which could save a significant amount of money over the full term of the cover.
It used to be the case that females would pay significantly more for income protection but since the European Court of justice ruled that this was sex discrimination the premiums for men and women have been identical, so this is no longer a factor.