So you keep hearing why you can’t live without an insurance policy called Income Protection? But what is it, and why exactly do you need it?
Well to put it simply, Income Protection (IP) is a form of insurance that will provide a payout if you are currently unable to work through injury or illness.
IP is usually referred to as a long-term insurance policy – this is due to the fact that it will typically pay out until retirement, death or until you are fit to return to work.
There are shorter-term options available, which may be a cheaper alternative, however they are unlikely to cover you for as long a period as Income Protection would. It is worth noting that IP does not usually cover you for redundancy – if you are looking for a policy to cover you should you lose your job, then Accident, Sickness and Unemployment Insurance (ASU) may be a suitable option.
Most people have considered a life insurance policy at some point, particularly if paying off a mortgage, but have probably not considered an Income Protection policy, perhaps dismissing it as unnecessary or too expensive. But this particular protection insurance could be one of the more useful policies that we should consider.
Income Protection is designed to replace your monthly salary if you find yourself unable to work, in order that your regular outgoings are paid on time. You can choose to use the payout on anything you wish – this could be your mortgage or rent, monthly groceries or paying off your credit card bills. This can help you to avoid the spiral of debt that can easily happen with a sudden loss of income. The exact payout will likely depend on your policy but you can typically expect to receive anywhere between 50-70% of your wages – and all payments are tax-free.
You won’t receive a payout straight away – Income Protection insurance will typically begin after a deferred period, which could be anywhere from 28 days to 12 months. If you have savings in place and know that you could survive financially for a while before your IP payments kick in, then go for a longer deferred period, this will help to lower your premium.
Does your employer offer a decent sickness scheme? If so, then Income Protection may not be necessary – although you should check how long you are able to claim from your employer? They may only pay out for a maximum of 12 months – great for short-term illness, but if you were to fall ill with a longer-term condition or suffered a life-changing injury, Income Protection could offer you much longer-term protection.
If you don’t have any sick pay schemes through work, you’ll be entitled to claim Statutory Sick Pay from the government. Currently, this is £88.45 per week, paid for a maximum of 28 weeks. If you’re the major breadwinner and having to cover expensive mortgage payments as well as other household bills, this amount would hardly cut it, would it?
Want to find out more about Income Protection? Speak to an insurance specialist who’ll be able to take you through the benefits of long-term insurance and find a policy to suit you.
Our trained expert advisers have access to the UK’s leading lenders and using their knowledge and skills will place you with the most suitable leader and product for your needs.