Income Protection Insurance
Income Protection Insurance (sometimes called Permanent Health Insurance or Income Replacement cover) will help support you financially if you need time off work (and therefore suffer a loss of earnings) because of injury or illness such as a back injury, stress or a chronic condition such as multiple sclerosis.
These plans will only protect you if you are unable to work due to illness or injury – they don’t pay out if you are made redundant. The question of whether or not you need income protection insurance isn’t likely to come up often, mainly because people don’t like to think about something this serious going wrong, but also because it’s all just a bit unexciting.
The reality is that there is the prospect that if you are injured or become ill, you might well not be able to work for a long time. If you are lucky, you might still receive an income for a given period of time, but that very much depends on the terms of your employment.
Unlike critical illness cover (see the next section), Income Protection doesn’t pay a lump sum – rather it provides you with a monthly income of up to 80 per cent of your salary until you are healthy enough to return to the workplace, your retirement age, your death or the end of the term of the policy you signed. One of the key considerations you must make when taking out cover is whether you want a policy that will pay out if you are unable to do your own job, or only if you can’t do a similar job or if you cannot work at all.
Additionally, if you were to have sick pay from your place of employment and you defer payments from your policy until such time as this ends – this is known as a ‘deferral’ period – your policy will be cheaper the longer you wait.
The cost depends on the level of income benefit selected but also factors like age, sex, lifestyle (e.g. alcohol and tobacco consumption), your general health, the deferral period chosen and whether you chose to index-link the cover so that it rises with a measure of inflation i.e. RPI or CPI – but remember, this means that the policy premiums will also rise with inflation.
Some see Income Protection as complex and expensive. It pays out on a monthly basis instead of as a one-off lump sum and it hasn’t helped that income protection has been lumped together with the notorious ‘payment protection insurance’, also known as PPI.
But many consider this – largely under the radar – type of protection to be the most worthwhile form of insurance and it is sensible to talk to an experienced independent adviser who can help you pick exactly what type of cover you need.
There are many income protection policies around, but it is essential to realise they are not all the same. Cheap cover may not deliver when you need it, so it is worth paying for a good policy. Speak to us to find out what cover’s right for you.
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