Is income Protection Insurance important to you?
Due to either severe illness or injury around a million people in the UK will find themselves unable to work. These are the times when income protection insurance comes in. This income protection insurance is there for when you need it most. So if something was to happen to you, would you have enough money in savings to cover your mortgage and other expenses?
What you should know before you take out income protection insurance
You should always examine the terms and conditions of any insurance policy thoroughly before you sign up to make sure it fits all your needs. You will need to be sure of precisely what you can claim for when you can claim and the amount you are expected to get.
So, what is income protection insurance?
Income protection insurance is also called permanent health insurance. This Insurance is designed to pay your bills, and on the event, you cannot work through either an illness or injury.
This insurance guarantees you continue to maintain a regular income during such time you cannot work.
This Insurance will also replace a part of your income if you were to become disabled or ill.
The Insurance will continue paying you until the time comes that you can either return to work or when the terms of the policy expires.
It is still worth making sure you have some savings as there is generally a waiting time before the company starts to payout. However, If you are employed, you may already be able to claim statutory sick pay for up to 28 weeks from the date you stop work.
Typically companies that offer lower monthly premiums will have a longer waiting time.
The exact amount of income you’ll receive will usually not be the same as the income you are replacing before you had to stop working. Most policies will pay you between half to two-thirds of what you were earning before tax from your job. The reason is that some of the money for state benefits that you are entitled to claim is subtracted. Also, the policy income amount is tax-free.
How many times can you make a claim?
With income protection insurance, it will significantly depend on the policy you choose. So it is worth doing your research. It may even be worth paying a broker or a financial advisor to make sure you are making the most informed decision possible.
There are differences between how you receive your payments, and this should not be confused with critical illness insurance, as this will pay out a one-off lump sum depending on the specific illness.
Also, it differs from short-term income payment protection. A short term payment protection is generally limited to around two to five years, but it also offers a monthly amount. However, it usually provides a fewer range of situations that it covers ranging from between two and five years and can cover fewer illnesses or conditions.
How much does income protection policy cost?
This amount will be dependant on your circumstances so no two people will be the same, but to give you an idea of the thing that can affect the amount you pay are:
- Your current age.
- Your profession.
- How healthy you are.
- If you smoke or have previously been a smoker.
- How much of your income you would like to cover with the policy.
Do you need income protection?
According to the Association of British Insurers, one million workers will find themselves in a situation that they cannot work so around 3% of the working population.
This problem is further compounded if you have children or other dependants as the stress could also hinder your recovery process.
If you fall into the self-employed category or your employer doesn’t provide you with sick pay, then you are potentially going to need income protection.
A useful tip would be to read your employment contract and check what your employer will pay for if you are unable to work.
Who would need income protection insurance?
- If you can already survive on your company sick pay, for instance, some companies offer benefits that are over 12 months.
- You have a large amount of savings ready to support you.
- If you feel you could get by on government benefits.
- If you have a family member or partner who is willing to assist you.
- You are already in a position where you could take early retirement.
Where can you buy income protection insurance?
You can purchase income protection insurance from the following places:
You can buy income protection insurance directly from the insurance company, but it may be worth considering an independent financial adviser, who can look at all the different policies on offer, they can also help you choose the one best suits you.
You could also use a comparison website to do this. You probably will not be able to buy the Insurance online as you’ll need to be assessed by the company for your appropriateness. But you’ll be able to apply for a quote online or find details of insurance advisers that are available for consultation.
Cancelling an income protection policy
If you take out income protection insurance, you usually have 30 days to cancel the policy and get a full refund.
If you choose to cancel the policy after 30 days, the money you are refunded may be smaller than the amount you have put in. Check your policy’s terms and conditions.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.