Most of us won’t ever imagine a time when we are incapable of working, let alone give much thought to yet another insurance policy on top of car insurance, home insurance and all the others.
Out of all the insurance policies, income protection insurance is the most important and one we strongly recommend to all our clients
at Ciaran Colm Coyle.
If you are puzzled by the term “income protection insurance” then don’t panic. Income protection insurance is a policy that will pay out if you are unable to work due to critical illness or injury.
The majority of employers will only support their workers with a year’s worth of sick pay and state benefits will only get you so far due to the low payouts. In short, income protection insurance is a must for anyone of a working age in the UK.
HOW DOES INCOME PROTECTION WORK?
Income protection insurance will replace part of your income during the time you are unable to work and will continue to pay out until you are able to return to work, retire or the policy term ends. The insurance company won’t pay your full income but pays an agreed percentage of your income, usually between 50-70% of your normal salary.
For example, if you earn £50,000 a year and take out a policy which will pay 70% of your usual earnings then you will receive £35,000.
You might think this is a drastic drop in your household income but the policy is free from income tax in the UK.
WHAT FACTORS WILL AFFECT AN INCOME PROTECTION POLICY?
Like all insurance policies there will be many health and lifestyle factors to consider such as if you smoke, how old you are and any existing underlying health conditions.
Remember, the type of job you have will also affect your premium. For example, if you are a construction worker or work at a manufacturing plant, you will be at more risk than if you worked in an office.
The riskier the job, the more likely you are to make a claim, the more you will need to pay into the policy.
WHAT ELSE DO I NEED TO KNOW ABOUT INCOME PROTECTION INSURANCE?
If you need to claim on the policy you should remember that it won’t start paying out right away. Depending on what you agreed, this can be anywhere between four weeks and two years after you put in a claim. As a general rule, the longer your ‘deferral’ period the lower you will pay into the premium.
Having an income protection policy will affect the amount of state benefit you are entitled to once you are unable to work. Be sure to spend time researching the Universal Credit
guidelines and how this may affect you.
Finally, make sure that you are not already covered. Some employers do offer income protection so be sure to check your contract. Also remember to make sure that no existing healthcare policies you might have offer this as part of the premium.