Types of Income Protection Insurance
18 Nov 2020
Choosing your income protection policy can be tricky. There are so many products to choose from, and with the protection of your family (and sometimes a lot of money) at stake, it’s not something you can afford to get wrong. With multiple different types of protection available to you, it’s important to be informed and make the right choice.
But you don’t have to do it alone. Here at LifeSearch, we’re here to offer you free expert advice to help get the right cover for you. So if you’re curious about income protection, let us break it down for you.
Types of Income Protection
Whilst many people know what life insurance is, a lot of people are unaware of the types of cover available other than just life insurance. However, when you start the whole ordeal of trying to find cover you’ll run into many other types of protection products. Whilst life insurance is the perfect starting point for a lot of people, there are different kinds of policies designed to cover you in different ways. Whether you’re looking for cover to protect you from Critical Illness, or a pay-out for your family after you die, there’s a policy for you.
If one of your worries is falling ill or getting injured and being unable to pay the bills or put food on the table, you’re not alone. Income protection insurance could be the right choice for you, either by itself or alongside other types of protection.
Many people confuse Family Income Benefit, Income Protection and Critical Illness Cover, as there are some similarities between the three of them.
Family Income Benefit is there to pay your family a tax-free monthly income after you pass away, and Critical Illness Cover pays out a lump sum should you fall seriously ill. Income Protection, however, pays out a percentage of your salary each month should you fall ill or get injured in a way that stops you from being able to work.
To find out more about Family Income Benefit and Critical Illness Insurance, take a look at our Advice & Guides hub or contact us today and let us help talk you through it.
So what is income protection cover?
Income protection is pretty simple. If you fall ill or get injured and are signed off from work, you can claim on your policy and be paid a percentage of your wage (usually between 50% and 70%). Payments are made monthly, like your wage would be, instead of as a lump sum (like the pay-out from a critical illness policy, for instance) which makes the money easier to budget for and harder to mismanage.
Depending on your policy, Income protection payments can continue for as long as you’re signed off sick by your doctor, even if it takes years for you to recover. You’ll receive monthly pay-outs until you retire or go back to work. Other policies will only pay for a set period of time before the payments stop, regardless of whether you’re ready to return to work at the end. These policies tend to be cheaper, so make sure you know what sort of cover you’re looking for.
Some policies allow you to claim more than once. For instance, if you had cancer and took time off from work and claimed on your policy, you could claim again if your cancer returned later in life - if that is covered by the details of your policy.
What does an income protection policy cover?
When you buy your policy, there are a few variables with regards to how you’re covered. Most income protection policies cover many illnesses and injuries that leave you unable to work; for example stress-related illnesses, back conditions, loss of limbs, cancer or serious heart conditions. Most insurers have very few standard exclusions (although many will exclude any pre-existing conditions you may have) so if it’s an illness or injury that forces you to take time off, it’s likely to be covered. If you want cover for something specific it’s worth talking to a broker who can guide you in the right direction and place you with an insurer likely to offer you that option.
You’ll also need to set something called a deferral period for your income protection, which is the period of time between you claiming your pay out and starting to receive the money. A longer deferral period results in cheaper premiums, so it’s worth figuring out how long you could maintain your lifestyle or meet your financial commitments without a paycheque. If you’ve got a substantial amount in savings, family to support you or you’re eligible for Statutory Sick Pay (SSP) or a good amount of employer sick pay, you might be okay for a longer period of time and could therefore set a longer deferral period.
You’ll also be able to decide how much of your salary you want to be paid out to you each month should you need to make a claim. If you have a lot of financial commitments that rely on your salary you might decide that you need a larger percentage of your salary each month, although of course premiums for a policy that covers 70% of your income will be more expensive than policies that only provide you with 50% of your income.
There’s a policy for everyone, and your income protection policy is what you make it. Take time to read through the fine print and make sure you’re making the right decisions for you. Contact us here at LifeSearch for advice from experts who genuinely care about helping you find the right option for you.