Limit of Coverage

There is a limit to the amount of income that can be insured. The limit will depend on your employment status and the type of arrangement you have.

On individual plans for both employed and self employed the limits set by insurance companies is generally in the region of 65% of income at the time of application.

For the self employed it is the gross income in the last 52 weeks prior to incapacity. For employed persons it is gross income plus benefits in kind in the past 52 weeks prior to disability. Director shareholders of close limited companies can also insure part of their dividend income and pension contributions paid by the company.

In the event of a claim the actual amount paid will be based on income at the time of a claim but will not be more than the amount insured. For example, a self employed person insures the maximum income available based on an income of £30,000 pa. Three years later income has fallen to £20,000 pa. A claim at this time will be based on £20,000 income and not £30,000.

It is therefore important that the plan is reviewed regularly to ensure that the income insured is sufficient for your needs but not over-insured. Other sources of income that take the maximum benefit over the limit allowed, may reduce the amount actually paid in a claim. These could include:

• Ongoing payments from employment such as sick pay or self employment.
• Pension payments unless they were being paid prior to the start of the plan.
• State benefits paid due to incapacity such as incapacity benefit, income support or other means tested benefits.
• Other insurances which provide regular payments or make payments normally due. For example, mortgage payment protection insurance, payments made under another income protection plan and credit repayments.