Every year millions of people cannot work because of a serious illness or they have had an accident. If you cannot work, would you be able to cope with paying the bills? If losing your income would mean that you struggle financially, income protection insurance can provide the money to continue to pay the bills.
What does income protection pay out?
Income protection insurance will pay a set percentage of your salary for most illnesses or accidents that stop you from working. Though conditions vary according to the policy, most payments will continue until you go back to work. If you have a long-term illness, you can be paid up until your retirement age or if you die.
There is no restriction on the number of times that you can claim on an income protection policy, unlike with a critical illness policy, which pays out a onetime lump sum.
There will usually be a waiting period before you get paid. The longer you wait, the cheaper the policy will be. Some policies start paying once sick pay from the employer has stopped.
Who needs income protection insurance?
Most people that are working need income protection insurance. The Association of British Insurers says that around one million workers a year have a serious illness or an injury that prevents them working. On top of the regular household bills such as food and energy, many households are in debt from credit cards, loans or a mortgage. If you would be unable to keep up with all the household expenses without your regular income, income protection becomes a good idea.
If you are off work for a long period, you will probably be entitled to sick pay and other benefits, but these will be low. The largest debt for most households is the mortgage, but benefits are unlikely to cover the average mortgage payments and this might leave your home at risk.
If you are self-employed, you won’t be entitled to sick pay, so it is important to take out self-employed income protection insurance.
Some companies have group income protection insurance. If your company does, you probably do not need your own income protection insurance.
If you are elderly and have a decent pension, you may be able to retire early and live off it. In this case, income protection insurance may not be useful. You may also not need protection insurance if you have considerable savings that you could live off.
How much does it cost?
The cost of an income protection policy is dependent on a few factors, such as your age, the percentage of income you want covering, the waiting period length before payments start, your health, and the range of illnesses and injuries covered. Some occupations are regarded as high risk and people working in them will be charged more for income protection.
To find out more about income protection insurance deals, and to arrange cover, talk to an insurance expert here at Ascot Mortgages.