Income protection may be something you’ve thought about and not got round to organising. Find out if it would benefit you.
Income protection is an insurance policy offering long-term sick pay for a fixed term of your choice. It covers part of your income in the event of you falling ill or having an accident that prevents you from being able to work. It covers you until you can work again or until retirement or death.
There are also some policies called General Insurance Policies which are renewable annually in the same way that you would renew your home insurance and car insurance or private healthcare every year.
What income protection does
If you would be unable to cover your bills if you couldn’t work, it’s well worth considering taking out income protection insurance. It’s also worth having if you are self-employed and wouldn’t be able to claim any sick pay if you took time off due to illness. Unlike critical illness, which pays out a one-off tax-free lump sum if you are diagnosed with a serious illness, income protection pays out a tax-free monthly sum until you can return to work.
Income protection typically only replaces part of your income. It usually covers between 50 to 75 per cent of your salary and there is a maximum limit on how much insurers will pay in one year. The more of your income you cover, the higher your monthly premium. The less cover you have, the more competitive the premium.
Explore your options
You may not need income protection if you could live on sick pay, your savings or on government benefits if you couldn’t work. If you are unsure about this, it’s worth considering having cover.
Income protection can cover stress-related illnesses and mental health issues, especially if medical intervention is required. However, it is unlikely to be covered on a new policy if you have suffered from stress in the past.
There may be a waiting period – also known as a ‘deferral period’ – from when you take out the policy before you can make a claim. Policies vary – you may be able to have funds paid to you straight away. Alternatively, you can defer payments for a specified time which can range from 90 and 120 days. The longer your deferral period, the cheaper your premium.
How much you pay will also depend on your age, job, your health, whether or not you smoke or have smoked, and the percentage of your income that you’d like to cover.
As cover and terms vary on income protection policies, we recommend shopping around and seeking professional advice.