Why You Need Income Protection

An incapacitating sickness or injury could affect your cash flow, leading to stress and anxiety over bills and other financial commitments. Income Protection Insurance (IPI) can help you to maintain your financial independence. In this guide, we’ll cover the broad features and benefits of IPI and why you need income protection.

Remember, to protect income insurance policyholders from commencing IPI payouts before the completion of any other cover, IPI advisors are trained to help choose a relevant policy start date (this can help to maximise cover and bring down premiums).

Features and Benefits of Income Protection Insurance

Income protection insurance differs from similar insurance policies in many ways. For example, income protection insurance is not the same as critical illness insurance, which pays out a lump sum relevant to your illness and your cover. Second, IPI is not a set-term insurance scheme – such schemes typically do not cover as many eventualities and only pay out over a capped period.

Benefits of income protection:

• Replace up to 70% of your income

Your income protection policy can provide up to 70% of your regular income if you are unable to work due to illness or injury*. The details of your policy will likely include most illnesses and injuries associated with incapacity, giving you broad peace of mind. You can also take out self-employed income protection.

• No surprises in your pay out schedule

Receive pay outs on your policy either until your agreed terms come to an end or until you return to work. The status of your policy will also be affected if you retire or die. For further information about death or retirement, ask your advisor for further details when discussing the terms of your agreement.

• Control the start date of your income protection policy

Many people choose to defer the start date of their policy to coincide with the end date of any sick pay or other insurance. The longer you defer your start date, the lower your premiums. To protect income insurance policies from over-lapping with any other relevant cover, always speak to your provider for guidance and assurance.

*The exact terms of your income protection agreement will depend on your circumstances. For example, factors such as your occupation, your age, your health and medical history (including whether you are a smoker), and the percentage of your income that you would like to protect will all help to determine the available level of cover to help protect your income.

Do You Need Income Protection Insurance?

Each year in the UK, over one million people are unable to work due to illness or injury. To put that into perspective, estimates for the UK’s total workforce peaked at 32.9 million people in November 2019. That number does not include factors such as COVID-19 and represents a record high, meaning lower numbers (under 30 million) are typical. That means around one in thirty people are temporarily or permanently unable to work through incapacity each year.

Why you need income protection:

• Families (parents)

If you have dependents (children, elderly relatives, etc.), you may wish to protect your income with a policy designed to cover your specific circumstances. Your agreement can help to provide your family with financial assistance if you are unable to work.

• Single people

If you do not have any dependants (or a spouse who would be left to pay the bills alone), you must consider your own well-being. Any sickness or injury that prevents you from working could mean you are unable to meet your financial commitments (e.g., mortgage, car payments, credit cards, etc.).

• Self-employed workers

Self-employed workers cannot typically rely on sick pay packages for support. However, if you do have a sickness insurance policy in place, for example, speak to your IPI advisor to help protect income insurance policies from over-lapping.

If you feel that you have sufficient financial means to cover a cash flow interruption, you may prefer to speak to an advisor about Payment Protection Insurance. This type of insurance does not protect your income but will help to cover specific payments (e.g., mortgage).