How income protection insurance works
20 Jul 2020
Income protection is a really important part of our protection insurance products and arguably, is the most vital of them all. The majority of us rely on our salary and income in order to get by in life; to pay the bills, pay the rent or the mortgage, and to put food on the table and petrol in the car.
That’s got to be something worth protecting, right? You’d think so, but the reality is that millions of UK households relying on income from employment do not have a safety net such as income protection. Association of British Insurers states that each year, as many as one million workers find themselves unable to work due to serious illness or injury. Then what?
How income protection can help
Income protection provides a degree of protection for your income, paying out a proportion of your salary (usually 50-70%) if you are unable to work due to injury or illness. This allows you to continue paying the essential bills such as your mortgage or rent payment, even when you can’t go out to work.
So, how does this work? When you take out an income protection policy, you’ll be asked to choose a deferral period. This is a waiting period between making a claim and when the payouts start. You can decide how long this period will be - the longer the deferral period, the cheaper your premiums are likely to be. This is typically six months, but it can be anything from four weeks to 12 months. Many policyholders opt for payments to commence after their Statutory Sick Pay (SSP) ends, if this is something that they are eligible for through their employer.
Income protection pays out regularly until you can either go back to work, until the policy ends or you retire or pass away. You can also claim more than once on a policy - as many times as you need to, in fact. This sets it apart from critical illness insurance for example, as that provides a one-off lump sum upon your claim.
Do I actually need income protection?
Well, the proof is in the stats. Around 250,000 people leave employment each year due to ill health - that’s around 1% of the workforce. 60% of these are the main household earner. With that in mind, income protection is well worth considering for anyone who would be at risk financially in these circumstances.
That being said, not everyone needs income protection. If your partner or family would be happy and able to support you and would have enough income to cover everything you need whilst you recover, then you may not need income protection. Similarly, if you have adequate savings to support yourself, you might choose to use those instead of income protection. Remember though, there’s no real way of knowing exactly how long you might be out of work for - if you’re out for longer than your savings will cover you for, then you might find yourself in a tricky situation with your finances.
It’s also important to consider SSP. At the moment, you can get £95.85 per week from your employer for up to 28 weeks if you’re too ill to work. You might receive more than this if your company has its own sick pay scheme. SSP is a great safety net when you’re out of work but it only covers you for a limited period of time and quite often it’s not enough to cover your outgoings. It’s also only available to employees so you won’t qualify if you’re self-employed. You could look to an Employment and Support Allowance instead.
Another circumstance where you may not need income protection is if you are approaching retirement age and could afford to retire early. You may be entitled to begin claiming your pension if returning to work isn’t an option.
So, convinced? We hope so. Income protection is definitely worth considering for anyone earning a regular wage. If you need any more advice or support, just give us a call. We offer fee-free expertise and support over the phone and we’d never recommend a product that isn’t right for you. Give us a call on 0800 316 3166 today.
Life Insurance & Pre-Existing Medical Conditions
21 Jan 2021
It’s not possible to get life insurance with pre-existing conditions, right? Wrong!