Income protection insurance is designed to protect you if you are off work through illness or injury. After all, if you were forced to leave work because of a long-term illness or a severe accident, could you cope with paying the household bills and be able to keep up your mortgage payments?
Sickness benefits are not enough
If you suffer from a long-term illness or a serious accident that prevents you working, you will be entitled to government benefits. However, the level of benefit you receive is small, and may not be enough to cover your mortgage. This means that you will probably struggle financially.
How much will income protection insurance pay?
The amount that the insurance pays varies, but is usually between 50% and 70% of your salary. All payments are tax free. There is usually a period during which you will not be paid, which ranges from one month to twelve months depending on the policy.
How long will you be paid for?
There are two main types of insurance cover: short-term and long-term. Long-term insurance cover pays out until you reach a fixed age or die, while short-term cover pays out for a period of between one and five years.
If you return to work, payments will stop.
Do you need income protection insurance?
Research by Personnel Today revealed that only 12% of employers financially support staff for more than a year if they are sick and not available to work.
Income protection insurance does not have a high take-up. In a survey by the consumer organisation Which?, only 9% of respondents said that they had any form of income protection insurance. This compared with 41% who had life insurance and 16% who subscribed to private medical insurance.
Income protection insurance is not PPI
Perhaps one of the reasons for the low take-up of income protection insurance is the bad publicity that payment protection insurance (PPI) has. PPI was fine in theory but it was mis-sold and subject to unfair conditions, which is why the banks have been paying back PPI to their customers.
Income protection insurance is not PPI. All firms offering income protection insurance are regulated by the Financial Conduct Authority, which makes sure that all policies sold are fair.
The cost and where to buy
The terms, conditions and cost of income protection insurance vary depending on the insurance company and the options available on their policies.
The cost of premiums is subject to the type of work that you do. Some jobs, such as manual work, are regarded as a higher risk of an accident then office workers and attract higher premiums.
Using a licenced insurance broker is the best way to find the right policy for your individual circumstances. They can find the right insurance policy for you and at a competitive price.
Income protection insurance provides a financial lifeline if you are unable to work though illness or a serious accident. At Ascot Mortgages, we can find the ideal arrangement for you, so why not get in touch?