Income Protection is an insurance policy that usually pays out until retirement if you're unable to work due to illness or injury
In order to ensure your quality of life continues, you could turn to an insurance policy to provide for the future. This type of insurance is known as Income Protection or ‘IP’, and is used to maintain the family income and essential outgoings, even if the main earner is no longer able to work.
The one protection policy every working adult in the UK should consider is the exact one that most people don't have – ‘Income Protection’. In fact, according to a survey by Which? magazine - only 9% of adults in the UK say they have some form of IP cover, compared with 41% who say they have life insurance and 16% who have some sort of Private Healthcare policy.
The majority of employers will offer some sort of support to their staff who are off sick, although many reduce their support to statutory sick pay after just 1 or 2 months. A survey by Direct Line found that almost half (43%) of employees reduce wages to Statutory Sick Pay after a person has been off sick for two weeks, and with state benefits only covering a set amount, it might make sense to ensure that your family is provided for financially should the worst happen… Could you rely on your employer to preserve your lifestyle if you were unable to work? For many people in the UK, the answer is NO!
The cost of living
Income protection insurance is designed to cover the cost of living while you are unable to work with a monthly lump sum. Therefore, it will rarely pay out the entire amount of your salary, as there is no income tax to pay. Some policies will pay as much as 60-70% of your typical monthly income whilst you’re off work, however, it’s always enough to cover the basic day to day costs of living, such as your rent / mortgage, general living expenses such as food - and your monthly bills.
When is it paid?
Most income protection policies start to pay out after a ‘deferred period’ that you choose, which is usually between 4 and 52 weeks. You set the period you are comfortable with when you apply for the policy; usually how long your employer will pay full sick pay whilst you’re off sick. As a general rule of thumb, the shorter the deferred period, the more expensive your premiums will be, so if you can get by on your sick pay, personal savings or other benefits for a little while, you could save on your monthly premiums by extending the deferred period.
How long does it last?
When you take your policy out, you can choose whether to take out a ‘short term’ or ‘long term policy’. A short term policy will typically run for a maximum of 2 years from the date of the claim, whereas if you choose a long term policy, it can often run for as long as it takes until you are fit enough to get yourself back to work, or until you reach the age of retirement.
Getting back to work
Many people feel the need to return to work after illness much sooner than they are ready because they are naturally concerned about the loss of income into their family home. This can often make the condition worse. Having an IP policy in place means there is no urgent rush to get back to work, enabling you to fully recover.
Some income protection policies will offer you ‘back to work’ benefits, which pays the policyholder a cash bonus when they return back to their full time job.
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There are lots of income protection policies out there that can be tailored specifically to suit your needs and monthly outgoings. The specific lists of what is and what isn’t covered will vary between insurers and you should always read your policy documents thoroughly, but as a general rule they are designed to cover:
- Accidents - If you’re unable to go to work because you’ve been involved in an accident, you will still be able to pay your main financial commitments such as your mortgage or rent and bills. IP pays out either until you're able to start working again - or for the defined period you choose
- Disability and Sickness - If you’re too ill to go to work, a policy which includes ‘sickness cover’ will pay out for up to 12 months. If you choose a long term policy, it could even pay until you reach retirement age - if you’re on long term sick
- 'Own Occupation' policies - Which will cover you if you're unable to do your current job
Choosing the right policy could be vital! - Talk to our friendly experts today about Income Protection Cover and how it will work for you, covering the events that worry you most. We can help you to get quick and easy quotes from the UK’s leading insurers, and help you get in place the right policy for your needs.