What is it?
Income protection insurance is a long-term insurance policy designed to help you if you are unable to work because you’re sick or injured.
It makes sure that you will continue to receive an income until a pre-determined date (typically retirement) or you are able to return to work.
It replaces part of your income - you can usually cover yourself for up to a maximum of 60% of your gross salary.
It pays out until you can start working again - or until you retire, die or the end of the policy term - whichever is sooner.
The plan can come with a deferred period to coincide with any benefits you get from your employer - you generally set payments to start after your sick pay ends. The longer you wait, the lower the monthly premiums. You can also factor in any savings that you have and could possibly use.
It covers most illnesses that leave you unable to work - unlike Critical Illness cover which covers more serious illnesses, an Income Protection policy can cover less serious illnesses that perhaps still might leave you unable to work. e.g Back problems/mental health issues
You can claim multiple times if needs be - while the policy is in force.
Do you need it?
According to the Association for British Insurers, over one million workers a year find themselves unable to work due to illness or injury.
Regardless of whether you are single, or have a large family, if illness would mean you couldn’t pay the bills, you should consider income protection insurance.
In particular I would say that considering these policies is essential for;
- Self Employed people who don't have sick pay to fall back on.
- Employed people with limited sick pay
- Employed people who are reliant on their income to pay their mortgage/rent/bills
- The main earner in a household. If for example; one of a couple earns £80,000 per annum and the other earns £15,000, then it is likely that if the person earning £15,00 can't work, then the person earning £80,000 can support them. The same probably couldn't be said if the higher earner didn't have any income.
Check what your employer will provide for you if you’re off sick.
Who doesn’t need it?
You might not need income protection insurance if:
You are happy to rely on your employers sick pay. Even if this is fairly generous, this is still a gamble.
You are happy to rely on State Benefits. With numerous cuts to welfare over the past decade, then again, this might not be sensible.
You have significant savings and are prepared to use these in case you were unable to work.
You could take early retirement. This makes sense, however triggering early retirement might drastically change what your retirement looks like.
Your partner or family would support you. Some people are happy to rely on their partner but less so with their family.
How much does income protection insurance cost?
How much you pay each month will depend on the policy and your circumstances and as with all health/life insurance, the younger and healthier you are when you take the policy out, the cheaper the premiums. Things like your occupation also impact your premiums as some are higher risk than others; for example a pilot would find it more difficult to work under certain health conditions, as opposed to someone who works in an office.
Things to watch out for?
Often selecting the cheapest insurer on a comparison site is easy to do, however with this type of insurance in particular, you need to do some research.
Premiums can either be guaranteed, or linked to an annual pre-determined increase. Often plans will start off with a lower premium, however after a few years the increases start to impact your desire to pay the premiums. Paying more upfront but having these costs fixed, is potentially a better route to take.
Often policies will have a maximum pay out of say 2 years, rather than until retirement. This is designed to make the policy cheaper, however in practice, the policy may not be fit for purpose.
Why not have a chat and find out if this type of insurance might be for you.
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