WHAT IS INCOME PROTECTION?
This insurance provides you with a regular replacement income if you are unable to work due to an illness or an injury. This may be of particular interest to Self-employed individuals who will not have accident or sickness pay from an employer. Everyone has monthly financial commitments like your mortgage or rent and especially if you have children; all the costs associated with them. It is not nice to think about but very important to protect your salary particularly if you rely on it each month.
Income protection cover is not the same as accident, sickness and unemployment insurance (ASU) which usually provides cover for one or two years in the event you’re unable to work or lose your job. Income Protection insurance is less known; yet more people in the UK insure their pets or even their phones, forgetting to insure the very thing that pays for it all - their income.
HOW DOES INCOME PROTECTION WORK?
Income Protection policy can be purchased as a standalone policy or it is usually purchased alongside life insurance. The amount of cover is based on a percentage of your income. Insurers will typically offer between 50%-70%. If you do have an accident or illness and need to claim, the policy will pay out either until you’re able to go back to work, or until the end of the policy term, retirement or death – whichever happens first.
Most Income Protection policies have a “Deferred period” meaning the policy will not pay out as soon as you make a claim. Manley Financial will review your current situation including your savings pot and then we can determine a deferred period that makes sense; this can be anything from few weeks up to one year. The longer the deferred period, the cheaper your premiums will be. However, if you choose a very long deferred period, you’ll need to be certain you’d be able to get by on any sick pay, or that you have enough savings to cover all your outgoings. Payments from Income Protection policies are tax-free.
DO I NEED IT?
Ask yourself: if I had an illness or injury and was going to be off work for the foreseeable future, how would I cope financially if I was no longer earning? If the answer is 'I do not know' then you need Income Protection in place.
Most employers will offer some support but for a very limited amount of time; then you will have to rely on the State which for many will not be enough to cover their outgoings. Income Protection gives you peace of mind that if something were to happen, you still have a regular income.
HOW MUCH DOES IT COST?
Income Protection premiums will vary depending on your personal circumstances; such as how long you want cover to last for and how much protection you want. Insurers will look at a range of different factors when working out your premiums, including your age and health, how risky your occupation is, and whether or not you are a smoker.
If you are a young person working in an office all day, your premium is likely to be a lot lower than an older person with a history of medical problems and working in the construction industry.