Income Protection Deferred Periods Explained

What is a deferred period?

A deferred period is the waiting period before an income protection policy starts paying an eligible claim.

It does not mean the policy only starts existing after that period. The policy is already in force, but the insured person must remain eligible under the claim terms through the waiting period before payments begin.

What deferred periods are common?

MoneyHelper lists common waiting periods of:

• 4 weeks
• 13 weeks
• 26 weeks
• 1 year

Insurers can offer other periods, so those examples should not be treated as a complete market list.

Why does the deferred period matter?

The longer the waiting period, the longer someone has to rely on other resources before policy payments can begin.

Those resources can include:

• employer sick pay;
• Statutory Sick Pay;
• savings;
• a partner's income;
• retained company funds for some business owners;
• other insurance or benefits.

Why can a longer deferred period cost less?

A policy that does not have to start paying until later is taking on less early-duration risk. MoneyHelper notes that longer deferred periods generally mean lower monthly premiums.

That does not make a longer or shorter period automatically better. It changes the balance between how long someone funds the gap themselves and the cost of the policy.

How does employer sick pay interact with it?

A deferred period can overlap with employer sick pay.

For example, if an employee receives full salary for 13 weeks, a 13-week waiting period would mean the two periods broadly overlap. That is only an illustration: actual employer schemes and policy definitions vary. Income protection and sick pay sets out how employer schemes and Statutory Sick Pay run alongside each other.

What about contractors or directors?

The same concept applies, but the resources available during the waiting period may be different.

A contractor with no occupational sick pay may rely more heavily on savings, company cash or other household income during the waiting period, as income protection for IT contractors describes. A director's Statutory Sick Pay position can also depend on their pay arrangements.

Questions worth checking

• When exactly does the deferred period start under the policy?
• Does it run in calendar days or by another policy definition?
• What income would continue during the wait?
• How long would employer sick pay or SSP last?
• Are savings intended to cover this type of interruption?
• What happens if someone returns to work and becomes ill again?