A quick guide to income protection insurance
Income protection insurance - it’s a product you probably don’t know much about. Let’s change that, because if there’s one product you definitely get to grips with, it’s income protection. Take two minutes to do just that right now.
- What is income protection insurance?
- Who needs income protection insurance?
- How does income protection insurance work?
- Is it hard to claim on income protection insurance?
- How much does income protection cost?
- Is income protection insurance the same as PPI?
- I want to know more
Income protection insurance is designed to replace some of your monthly income if you are unable to work due to illness or injury. It pays a tax-free monthly benefit and keeps paying that benefit until you recover and are able to return to work, your policy comes to an end, or you retire.
Income protection insurance is designed to help you and your family cover your regular outgoings and maintain your lifestyle, should something nasty and unforeseen happen.
What income protection insurance isn't to be confused with is unemployment insurance or redundancy insurance, which is a separate type of cover completely.
Most people! Unlike other protection products like life insurance and critical illness insurance, which are traditionally most suited to people with debts (usually a mortgage), income protection insurance is a useful solution for nearly everyone.
That’s because most of us earn a regular income and would struggle financially to cover our outgoings if we were unable to work.
Here are just a few things you might want to think about:
- Could you or your family cover your regular outgoings if you couldn’t work?
- Would you get any financial support from your employer if you went off work sick?
- Are you entitled to any state support if you couldn’t work due to ill-health?
- Do you have any savings that you’d be able to use if you couldn’t work?
- If you lost your income, could you change your lifestyle to reduce your regular outgoings, and would you be happy to do that?
There are lots of things that need to be factored in when working out if you need income protection insurance, so it’s worth having a chat with one of our friendly advisers on 0800 316 7253.
Once you’ve decided that you need income protection insurance, there are five main choices that you’ll need to make:
- Cover level: The amount of benefit you’ll receive each month. You can choose the right level for you but typically it’s up to 60% of your gross monthly income.
- Cover term: How long you’d like to be protected for. This is usually a fixed number of years, say 25, or however many years you think you’ll be in full-time employment. If you fall ill and become unable to work in that period of time, your income protection insurance will start paying your monthly benefit.
- Benefit term: How long the insurance benefit will be paid if you’re ill and unable to work. Many people want the money to continue until retirement, but you can pick say two or five years if that’s all you need.
- Deferred period: How long after you’ve stopped working that you’d like the income protection insurance benefit to start. This product feature can sometimes be a bit confusing, but often people don’t need their insurance to start paying straight away, particularly if they’re employed and they receive sick-pay for a period of time. Self-employed people, on the other hand, often choose very short deferred periods as they won’t have financial support from an employer.
- Definition of incapacity: This is what qualifies you to start receiving your income protection insurance benefit. The definition that most insurers offer, and probably the simplest, is called ‘own occupation’, which means that if you are ill and can’t do your current job you qualify to start receiving the benefit. Some insurers also offer slightly stricter definitions, like ‘any occupation’, which means that to qualify for your insurance benefit you must not be able to do your current job, or any job at all, if you fall ill.
No! In fact, your chances of claiming on an income protection insurance policy are usually far higher than your chances of claiming on a life insurance policy, or even a critical illness insurance policy, simply because you’re probably more likely to be off work due to an illness or accident, than you are to die or become critically ill.
In fact, the risk of a 35-year-old male being unable to work for two months or more is seven times higher than his risk of death, before retirement*.
The cost of your income protection insurance will depend on a number of things, including:
As a simple rule, the more likely you are to fall ill and make a claim on your policy, the more expensive your cover will be. So the younger you are when you apply for your policy, and the healthier your lifestyle, the lower your insurance premiums will be.
At LifeSearch, we search the market to find the best value insurance for you, based on you and what’s going on at home. Simply click here to request your personalised quote from us now.
You’ve probably heard of payment protection insurance (PPI), a product that protects specific debts and has been extensively mis-sold in the past. Income protection insurance is a very different product, as it pays the tax-free benefit directly to you, instead of to your lender, and gives you the flexibility to tailor the product to your financial needs.
We’re here to help. Call us on 0800 316 7253 or request a callback from one of our expert advisers. We’ll arm you with the right info and answer any questions so you can protect the life you love. We look forward to chatting with you soon.
Income protection & your mental health
9 Sep 2021
Nothing is worth risking your mental health for. Find out how income protection can give you a helping hand.
Income protection vs critical illness
16 Aug 2021