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What is Income Protection Insurance?
Income protection is a type of insurance which can help you stay on top off your payments. It is a regular payment which is made to you, should you end up unable to work due to an illness or disability.
Every year, almost a million people in the UK suffer an injury or a serious illness that means they can’t work for a month or more.* If you were among them, would you be able to cover your day-to-day bills without your full regular income to rely on? Or would you find yourself struggling financially at a time when money should really be the last thing on your mind?
Your employer might keep paying you for a while, but there’s a limit to how long that would last. You might think the state would provide – but applying for benefits can be a complicated and lengthy process. You’d need to work out what benefits you might be entitled to and then navigate means testing. And in the end, possibly after weeks and months with no income, you could be surprised at the amount you’d be expected to survive on.
Income protection is insurance to help you cope with these circumstances. It pays you a monthly income if you’re too ill to work, helping you cover your costs and allowing you to focus on your recovery. You can claim if you meet the definition of ‘incapacitated’ in your income protection plan. Get in touch with Finance Surgery today.
We all have bills to pay, mortgage or rent payments to keep up with and most of us have some debt too. What would happen if you suddenly became ill and could no longer work? Would you still be able to keep up with your payments?
The answer for most of us is no – unless you have substantial savings to fall back on and creditors don’t care what has happened to you, they just want to make sure you pay back what you owe!
What income protection cover do you need?
There are two different types of income protection, short term and long term. If you expect to be out of work for a long period of time due to an illness, it will be more beneficial to take-out long-term income protection. If your illness is only likely to cause you to be out of work for a short period, you are probably better off with short term income protection.
It is important to check that your employer doesn’t offer an income protection plan as part of the terms of your employment or you don’t have protection through your mortgage company. If you have savings, then it might be more useful to use these, depending on whether you have enough to see you through the duration of your illness. Our advisors at Finance Surgery can advise on whether this is the most suitable option for you, depending on your circumstances.
You must declare any illnesses you currently have with the insurer or any family health problems, as they may not be able to offer you cover. If you don’t declare these and they come to light later in the process, it may affect your claim.
Critical Illness Cover vs Income Protection Insurance
If you have already looked at our section on critical illness cover, you may be wondering what the difference is. You are right in thinking that these insurance policies are very similar but there are some differences and it is worth exploring each insurance before you decide.
Critical illness cover is a cheaper option; however, it only covers specific illnesses. If you end up with an illness which isn’t covered by your insurer, you won’t be entitled to the payments. The cover is also available for a shorter period than income protection, so you need to weigh up the pros and cons of each before deciding.
You can have more than one policy at the same time, but it is unlikely that it will really be worth it. It may be a better idea to have long term income protection insurance or you may want to use a combination to cover all eventualities. An advisor will be able to help with this, as the last thing you want is to spend more than you need to.
What are the benefits of Income Protection Insurance?
There are a range of benefits of an income protection policy. If you don’t have any (or very little savings) income protection insurance can be a godsend if you fall ill. None of us know what lies ahead and income protection insurance can provide peace of mind in case the worst happens.
In most cases, it is not tax deductible, but you would need to check your policy to make sure. You can usually customise it to suit your own circumstances, such as when you want to receive the payment and how long you wish to receive it (short term or long term.)
If you never get sick, it might seem like you have paid money for nothing, but the consequences of not having insurance and the stress it can cause, can be much worse. If you want peace of mind, it is worth considering protected income options.
What is the cost of Income Protection Insurance?
The cost of income protection insurance is dependent on your circumstances and lifestyle. Men tend to pay more than women, as they make more claims. If you have a risky job, such as working on a building site, you are likely to pay more.
You will also find your insurance costlier if you are in poor health and/or have an unhealthy lifestyle (such as drinking heavily or smoking.) Premiums are also lower if you are willing to wait for a period before you receive your pay out and if you are willing to do other jobs, which might be more suitable based on your illness.
For example, you may not be able to work on a building site, but you may be happy to work in an office. These aspects will all be taken into consideration when determining the cost of your income protection insurance. The insurance company will be able to provide you with an income protection quote.
If you are unsure about how much cover you need to take out, you should consider your monthly income and how much you would receive in state payments. You also want to factor in any regular expenses you have, as well as any extra costs associated with your illness, such as medication and extra costs for heating etc.
If you need some advice on income protection insurance and the potential costs of taking out a policy, our advisors at TCF Financial Planning will be happy to offer you any assistance you need
Is Income Protection Worth It?
If you or your partner became ill, would you be able to survive? Do you have savings or another type of insurance as a safety net? If not and you want peace of mind, it might be worth considering income protection insurance.
It is worth remembering that savings only last a specific period and you may be out of work for a long period. Income protection insurance can be a good safety net for covering mortgage/bills and daily expenses.
Your employer may pay you sick pay for a long period of time after you fall ill, so it is worth finding this out before you decide whether to take out any kind of income insurance.
Your premiums will be lower if you delay the claim, so speak to your employer or look at your company handbook first, before you determine which type of insurance to take – if any.
At TCF Financial Planning, we are happy to answer any questions you may have in relation to this insurance or any others. Speak to our advisors if you are unsure which will be the most suitable based on your circumstances.
Income Protection Insurance and Sick Pay
Your sick pay is entirely different to income protection insurance. Sick pay is either statutory or some employers have a different sickness policy in place. In most cases, the insurance pay-out will start when the sick pay ends.
The longer the term of your sick pay the better, as your premiums will be lower. It is worth checking the terms of your sick pay with your employer, so you know exactly when you will receive the payment for your claim. Insurance companies all have different income protection schemes, so you need to find the right one that works well with the terms of your employment.
We understand how important it is to make the right decision when it comes to taking out insurance policies and we have a team of experienced advisors who will ensure you make the right one.
Talk to us about your individual needs and circumstances and we will try to give you an understanding of what would be the right option, so you get good value for your money.
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