What is it?
Income Protection is an insurance policy designed to pay out a regular income if you are unable to work due to an accident, sickness or unemployment.
The pay-out can make sure you are still able to meet your essential household costs. For example, your mortgage/rent, utilities and to put food on the table, until you are able to return to work.
How does it work?
You can choose between a short-term plan and a long-term plan. Some insurers now offer 1 or 2 year payment terms. Alternatively, you can choose the long-term plan which will pay out until retirement, death or your return to work.
If you cannot afford to be off work for 1 day, you can choose for the cover to pay out from day 1. This gives you the peace of mind that you are protected straight away. Cover can also start from 1 week, 4 weeks, 8 weeks and so on. Generally, the longer you can wait for the pay-out, the lower your monthly premiums will be.
Premiums will also depend on your age, health, occupation and how much cover you need. The amount of protection you can have is based on a percentage of your income, which varies from 50% to 70%. Payments are also completely tax-free and if you are employed you can still receive your Statutory Sick Pay at £94.25 per week.
Why take out income protection?
Family – If your family depend on your income, the loss of income can be severe. The pay-out from Income Protection can ensure your income is covered. Taking care of your family is the main reason why you should take out an insurance policy. Whether it may be for Income Protection to protect your wage, or for a Life Insurance policy.
Household Costs – Income Protection can ensure that in the event you cannot work due to illness or injury, you can still afford to pay your essential household bills. For example, mortgage/rent, utilities etc.
Self Employed – If you’re self-employed, unfortunately, you won’t receive any sick pay or SSP. Income Protection can be important to ensure your income is replaced if you fall ill.
How much does an income protection policy cost?
The cost of an income protection policy will vary depending on a few factors. These factors are…
Pre-existing medical conditions
Amount of Income you want protecting
According to consumer group Which?, Income Protection is the one insurance product that every UK working adult should consider.