What is income protection?
Income protection is a percentage of your type of insurance which is designed to pay you a regular income if you’re unable to work due to illness or injury.
How does income protection work?
When you buy income protection insurance, the amount of cover you take out is based on a percentage of your income, typically between 50%-70%. In the event of a claim, the policy will pay out either until you’re able to go back to work, or until the end of the policy term, retirement or death – whichever happens first.
Income protection policies don’t pay out as soon as you make a claim. You need to wait for a pre-agreed period to pass, known as a ‘deferral period’. This is decided on when you take out the cover and can range from a few weeks up to a year. Deferred periods are usually 13 or 26 weeks, but the longer the deferred period you opt for, the cheaper your premiums will be. However, if you choose a very long deferred period, you’ll need to be certain you’d be able to get by on your sick pay, or that you have enough savings to cover all your outgoings. Income protection insurance can work in different ways, so you need to read the small print carefully. For example, if an income protection policy is arranged on an ‘own occupation’ basis, then it will pay out in the event that you are unable to perform your own job due to illness or injury. However, if cover is arranged on an ‘any occupation’ or ‘work tasks’ basis, it will only pay out if you’re unable to do any kind of work at all.
Payments from personal income protection policies are tax-free. Income protection cover is not the same as accident, sickness and unemployment insurance (ASU) which usually provides cover for one or two years in the event you’re unable to work or made compulsorily redundant. It also shouldn’t be confused with critical illness cover, which pays you a one-off lump sum if you’re diagnosed with a serious illness such as cancer or heart disease.
Do I need income protection?
If you’re not sure whether or not you need income protection, think about how you would cope financially if you were no longer earning due to an illness or injury. Most employers will only support you for a limited period of time. After that, unless you have substantial savings in place, you may have to rely on state support, which for many people is not be enough to cover all their outgoings. Income protection can provide valuable peace of mind that if you can’t work, you’ll still have money coming in.
How much does income protection cost?
The amount you’ll pay for income protection insurance depends on your individual circumstances including how long you want cover to last for, and how much protection you want. Insurers will look at a range of different factors when working out your premiums, including your age and health, how risky your occupation is, and whether or not you are a smoker.
For example, your premiums will be lower if you are young and healthy and in a low risk occupation such as administrative work, but they will be higher if you are older, have a history of medical problems and are in an industry where there is a greater chance you might have an accident, such as construction work. Income protection cover is often taken out alongside life insurance, although you can take out a standalone policy if you want to.
What Heritage can do to help
Finding the right income protection insurance to suit your needs isn’t always easy, particularly with so many policies to choose from. Our protection advisers can search the whole of the income protection market on your behalf to help your find the right cover, at the best possible price. They will not only compare income protection policies but can also talk you through other types of protection you might want to consider. For example, you may decide to opt for a combination of different policies, such as life insurance with critical illness and income protection, or you may want income protection cover alone. Whatever your requirements, we’re here to help.
Talk to us now for friendly, simple advice on the best options for you and your family.