According to The Money Advice Service, over 1 million people find themselves unable to work every year due to a serious illness or injury. Individuals never think that they will be the ones to suffer from an accident or illness. They drive safely, they look both ways when crossing the street and keep themselves in good shape.
Unfortunately, you only have to be in the wrong place at the wrong time to find yourself out of luck and unable to work. If this were to ever happen to you, income protection insurance will help tide you and your family over while you rest and recover. It may seem unnecessary at this point in time, but it can be a great help when you really need it. Read on for more information on how Income Protection can help.
Who Can Apply?
Income protection is really recommended for anyone who wants to cover their salary so that they do not fall behind with any monthly outgoings, in the unfortunate event that they are unable to work. People often consider income protection insurance when they are self-employed, when they have children or other dependants, or if they know they would struggle to make ends meet if they had no salary. If any of these examples fits your scenario, it may be a good idea to look into income protection.
Do I Actually Need it?
While Income Protection can certainly help you in times of need, you may already have some other kind of cover that provides you with the support you and your family will need. You may not need Income Protection if;
- You become ill and you can get by on sickness pay. Some employee benefits packages provide their employees with an income for 12 months or more for long-term sickness.
- You can get by on your savings. This is not always easily measurable, but it can be achievable in the short term.
- Your partner or family can support you. In some instances, where two members of the family work full-time jobs, one partner may earn enough money to keep all family members in the clear. This could be an option for you if you would rather not invest in Income Protection.
- You can take early retirement. If you are close to retirement age and you are unable to return to work, you may be entitled to take your pension early.
What Income Protection will Cover and What Policies are Available
An Income Protection policy pays you a benefit of up to 60% of your gross income if you cannot work due to ill health or accidental injury, after an agreed period of time called a Deferred Period. Payments are usually tax-free, depending on individual circumstances, and will continue for the entire period of your illness up until the end of the policy term or retirement – whichever you select. Income Protection policies do not provide cover for redundancy or unemployment.
You’ll need to choose the deferred period you think best suits your situation based on your personal financial situation, the longer the deferred period, the lower your premium. Next, you will need to choose a policy to fit your needs. Options include;
Guaranteed Policies; which guarantee that the premium you pay stays the same for the duration of the policy term – which can be any length specified. These policies can be expensive initially but can end up cheaper in the long run.
Reviewable Policies; which is a policy that is reviewed by the provider at regular intervals (usually annually). This can gradually increase the premium you pay year over year, meaning that while the policy may be cheaper initially, it may work out more expensive in the long-term.
Age-Related Policies; These are normally popular with people who are at a greater risk, either through their health (smoking, history of cancer etc.) or through their occupation. Age-related policies mean that your premium will increase every year in keeping with your age, but you will know how much by.
Other Types of Insurance
If you are still unsure about Income Protection being the right policy for you, there are other types of insurance that you can consider. These include;
- Life insurance – Provides financial support for your dependants if you die.
- Payment Protection Insurance – This policy will cover certain selected payments, such as your mortgage if you are ever ill, unable to work, or are made redundant.
- Accident and Sickness Only, Unemployment Only and Accident, Sickness and Unemployment Cover (also known as ASU). You’ll need to choose the type of cover you think best suits your situation
- Short Term Income Protection – If you are unable to work for a short period of time, this may be the best option for you.
- Critical Illness Insurance – This policy provides a tax-free ‘lump sum’ if you are diagnosed with a serious or critical illness covered in your policy.