Income Protection Insurance
Income protection is a type of insurance to provide you with a regular monthly benefit to replace lost income when you are not able to work, either long-term or short-term, due to sickness or disability. It gives the policyholder some security over the future to cover necessary expenses if they are unable to work.
How does income protection insurance work?
Income protection will only protect against illnesses or injury that prevents you from working. It does not cover redundancy. If you are unable to work due to illness or disability then the policy will allow you to claim until either:
- You are able to return to work.
- You retire.
- You die.
- Your policy ends.
There is no limit to the amount of times that you can claim during the lifetime of the policy, subject to any limitations of the policy which will be identified from the outset. It will not entirely replace your lost income and generally you would receive between half to three quarters of your pre-tax earnings since all the money you receive is tax-free. A policy can’t make you better off claiming the insurance than you would be if you were working as there would not be an incentive for you to return to work!
How much does it cost?
Each policy is tailored to an individual’s specific needs and circumstances so can be quite complicated. There are various factors that will affect the cost of the policy, including:
- Your job. The riskier your job, the higher the premiums.
- Most policies are available to those aged between 18 and 60 years. The younger the applicant, the cheaper the policy payments are likely to be.
- Length of cover. If you choose a shorter policy length then the premiums will be lower.
- Income required. You can either be paid a set amount or a percentage of your annual salary. The more you require, the higher your premiums will be.
- You will need to fill in a medical questionnaire and this will affect your premiums (for example, if you are a smoker or have a pre-existing condition or family medical history).
- Increasing the waiting period before payments start will also reduce the amount you have to pay each month.
Do I need it?
Before taking out such a policy, you need to consider whether already have income protection (possibly as an employment benefit through work). It may be that you have another type of illness insurance (perhaps associated with your mortgage) which would cover you if you were to become ill. It is also worth considering your savings and how long these would cover your expenses or whether another family member could financially support you if you were unable to work. Consider as well whether early retirement would be possible if you were unable to work. Bear in mind any benefits you receive since these could be affected by any payments that made through the insurance.
If you do have a policy through your current employment, it’s important to note that this cover would stop if you were to move to a new job. If your new employer didn’t offer the same cover you would either need to take out a private policy (likely to be more expensive the older you are) or remain un-insured.
When does it pay?
There will usually be a specified waiting time or deferred period associated with the policy, which is the time between making a claim and when you start to receive payments. It is generally much more expensive to take out a policy whereby you could claim as soon as illness or disability occurs.
Usually there is a period of 4 weeks or more before the payments will start. It is possible to be able to claim as soon as you are unable to work, but these policies will be more expensive. However, other factors can delay when payments will be made. For example, if you initially receive sick pay from your employer or can claim statutory sick pay, then the waiting period associated with your policy can be tailored to start at the end of this time during which you’ll be receiving full pay in any case.
It is always advisable to speak to a professional adviser to ensure you have the right level of cover. Heide from Swift mortgages is an experienced and professional whole of market mortgage and protection adviser. Please contact us if you are considering taking out income protection insurance or any other kind of protection. We can help find the most suitable protection for your own situation.
Call on 01525 309300 or 07903 302895 or send us a few details and we will be happy to talk through your options with you.
Find more details here: https://www.swift-mortgages.com/insurance-and-protection/