Most households have regular bills to pay: the mortgage, energy bills, food, insurance and many more expenses. What happens if the main wage earner in the household cannot work because they are sick or injured? Income protection insurance can remove the financial burden caused by losing your income.
Benefits are not enough
Unemployed people get some state benefits and your employer may pay sick pay for a while, but the benefit system only covers some of your expenses, and may not be enough to keep up with mortgage payments.
Short or long term
An income protection policy can pay out over the short or long term. A short-term policy will provide a regular income based on a percentage of your salary, but payments will stop after a year or two years depending on the policy. This is fine for most situations, as the majority of people who cannot work through illness or injury are able to return to work in less than a year.
A critical illness policy will payout a lump sum if you are diagnosed with a critical illness that is liable to prevent you working for a long period of time. This policy pays out a lump sum which is designed to help you financially for several years.
The level of protection
When taking out income protection insurance, you decide on the level of cover. You could choose to receive 50% of your salary to keep the premium costs down, but realistically half your salary may not be enough to cover all your expenses. You need to work out what your monthly expenses add up to and choose a level of cover that will enable you to meet these expenses.
All payments from an income protection policy are tax free.
Do you need income protection insurance?
Your employer may have a group employee insurance policy that will pay you an income if you are sick or injured. Check with your employer first. If you are not covered by their insurance, and your family’s lifestyle is wholly or partly dependent on your income, then it’s a good idea to buy income protection insurance.
There are a number of factors that affect the cost of premiums. Younger people pay less than older people, as the elderly are more at risk from becoming sick.
If you select a low percentage of your salary, this will reduce premiums, but you could risk being underinsured.
A smoker will pay more, and someone with an existing health condition may not be able to purchase income protection. Workers in-high risk occupations will also pay more.
Where can I find out more?
If you want more information about the benefits of income protection insurance, talk to a friendly expert adviser at Ascot Mortgages.
You can choose from a wide range of insurance providers and products through us in order to find the right policy to protect you and your family.