Income protection insurance provides a tax-free monthly payment if you lose your job through illness, accident or redundancy. This gives you the security of knowing that your regular monthly payments and household bills will be covered if you are temporarily unemployed.
Most income protection policies monthly payments will continue until retirement, death or when you return to work.
Wouldn’t benefits be enough?
It’s unlikely. Many people mistakenly belief that sickness, disability or unemployment benefits will cover their bills. While government benefits can help, they are at such low levels that they probably will not cover large payments such as the mortgage and energy bills.
Income protection insurance will pay between 50% and 70% of your normal monthly earnings, but this sum is tax free. There is a waiting period before payments are made, which is normally from four weeks to six months depending on the policy.
There are also income protection insurance policies available for the self-employed.
Will my employer help me?
Research carried out by Unum and Personnel Today found that just 12% of employers will pay money to their staff for more than a year after they are off sick. Only 9% of people asked by the consumer organisation Which?* said that they had income protection insurance. This highlights the need for public awareness about the benefits of this type of insurance.
Some people confuse income protection insurance with payment protection insurance or PPI. PPI only covers a specified debt and has been mis-sold in the past by financial organisations.
Before deciding to take out income protection insurance, you need to consider whether your employers offer income protection cover as a part of your contract of employment. There are a few companies that offer this.
You also need to consider if you have enough savings to cover your living expenses if you are out of work for an extended period. Even if you have sufficient savings, you may not want to rely on them. If you deplete your savings because of a loss of income, that could be years of shrewd financial practice undone in a few months.
What does my insurer need to know?
To calculate the cost of income protection insurance, insurers will take into account your medical history. You will need to disclose any existing medical conditions otherwise, the policy could be invalid. You also need to tell the insurer if you are a smoker.
Policy prices for income protection insurance can vary widely. If you work in what the insurer regards as a dangerous occupation, the policy will be more expensive. If you engage in dangerous hobbies such as mountain climbing or base jumping, this could cause your policy to cost more too.
The best way to buy income protection insurance is through an insurance broker. At Ascot Mortgages, we provide expert advice on income protection insurance and can match your situation to the perfect policy for you. We have access to a wide range of Insurance companies and policies and can find a competitive price for your insurance.
For an insurance quote in a matter of minutes, contact Ascot Mortgages today.
* Figures taken from Which? as of September 2016.