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Income protection is a form of insurance that helps you to meet some of your financial commitments if you’re ever unable to work due to illness and injury. It can be enormously helpful in many different situations.
What does income protection cover?
Income protection insurance pays you a regular, agreed income if you can’t work because of sickness or disability. The pay continues until you return to work, you die or your benefit term reaches its end.
How does income protection work?
Your income protection policy is designed specifically around your needs. To set up your policy, you’ll need to agree the following:
Cover level – the income you want to receive each month you cannot work. Think about the minimum income your family could survive on – covering bills, food, the mortgage etc.
Benefit term – With Income Protection cover you have a number of different options. Typical payment periods are as follows: 12 months, 24 months or until the end of the policy life.
Cover term – how long you want the policy to last.
Deferred period – how long after you stop working will you want payments to begin? This often links with your employer’s sick pay policy. For example, some companies will pay you in full for the first three months’ sickness. In this case you may want your income protection payments to start in the fourth month.
Definition of incapacity – every insurer has their own rules about what defines you as lacking the capacity to work. It may be that you are unable to do your job, but some providers might state that you must be unable to do any job.
Does income protection cover self-employed people?
Income protection is available to the self-employed, but you may need to find a specific policy and provider.
Self-employed people are particularly well advised to take out income protection, as they receive no sick pay if they cannot work. Unless there are substantial savings to fall back on, the lack of income could cause financial problems.
Will income protection cover me if I lose my job?
No. income protection is specifically designed for a loss of income due to illness or injury. If you are fired, made redundant or resign, you will not be able to claim on your income protection policy.
What’s the difference between life insurance and income protection?
Both these types of protection are there to help your family should anything stop you from working. Income protection is obviously something you claim while living – and in fact it would stop paying out following your death.
Meanwhile life insurance provides a single lump sum to your loved ones should you pass away.
Is it worth getting income protection insurance?
Whether income protection is a good choice for you will depend on your specific situation, your health and your line of work. Not everyone needs this type of protection.
If you’re employed and cannot work, you will receive Statutory Sick Pay (SSP) which provides you with just under £100 per week. You may feel that you can survive on this amount, especially if you have no mortgage to repay.
But for other people this amount leaves them very exposed. Additionally the self-employed do not qualify for SSP. If you are concerned about how you would manage financially, you should explore income protection as an option.
What costs are involved?
The cost of your income protection policy will depend on the amount you wish to receive each month, the length of the policy and the deferred period. A good financial adviser will be able to seek out the most appropriate policies and explain all the details to you.
What are the benefits of income protection?
Income protection is an important support service for people who are ill or injured. In exchange for monthly premiums you gain reassurance and confidence that you will have tax free financial support in the form of monthly benefits for a set period of time.
How do I get income protection?
As qualified financial advisers we are here to talk you through all the different forms of protection, including life insurance, critical illness insurance and income protection. We will review your specific situation and make recommendations about the products that may suit you in both the short term and the long term. There’s no cost for an initial consultation, so get in touch with us today.
If you are looking for wealth management, mortgage or life insurance, call us today on 01923 606808 or complete our short enquiry form.
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