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Do you need Income protection insurance?
Consider how you’d cover your usual monthly costs if you were ill or injured and couldn’t work for a while. Would you be able to carry on paying the bills using statutory sick pay or your savings? If not, it’s worth thinking about.
Only a minority of employers support their staff for more than a year if they’re off sick from work. Given the low level of state benefits available, everyone of working age should consider income protection.
The one protection policy every working adult in the UK should consider is the very one most of us don’t have – income protection.
Your health, whether you smoke and level of cover needed will weigh into your premium, but your type of job also plays a major part in determining what you’ll pay.
Many insurers group jobs into four categories of risk, though some have more. For example, jobs may be divided into the following groups:
The riskier the type of job you have, the more likely it is that you may need to make a claim. Therefore, those in the riskiest occupations tend to pay higher premiums.
Income protection payouts are usually based on a percentage of your earnings: 50% to 70% is the norm. Sometimes, an insurer might pay out a higher percentage of one portion of your salary (perhaps the first £50,000), and a lower percentage on anything above that.
For example, say you earn £40,000 a year, and you take out an income protection policy designed to pay out 60% of your salary.
Over the course of a year, your policy will pay out £40,000 x 60% = £24,000.
The good news is that payments from income protection policies are made free of income tax.
The length of your policy is also known as the policy term and this will be how long you’re covered for.
This means that you’ll be able to make a claim at any time throughout this period and it can even be possible to make multiple claims during this time (each claim period will need to have come to an end before another claim can be made).
When choosing a policy term you may want to consider certain factors such as the length of your mortgage, how old your children are or how long until you reach retirement to ensure you’re covered for as long as necessary.
No, income protection will not pay out to you if you lose your job.
This is because an income protection policy doesn’t cover unemployment or redundancy.
Income protection only pays out for sickness and injury as a result of an accident.
If looking for cover that will protect you in the event of unemployment, you may consider a policy such as Accident, Sickness and Unemployment (ASU).
Anyone who doesn’t have alternative sources of income, with financial commitments and/or a family to take care of can benefit from having income protection in place.
Income protection can prevent you from needing to rely on financial help from others, dip into your savings or make changes to your lifestyle when you’re unable to earn your usual income.
In particular, income protection may be a worthwhile investment if you’re self-employed.
This is because self employed workers won’t receive sick pay from an employer, so income protection could provide much needed financial aid.
Insurers on our panel include:
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