Income protection insurance is a form of financial protection that is designed to help you out in case you get injured or ill and can’t work for a period of time. It can also be used to protect you if you get injured or ill and can’t work for the rest of your life. It’s important to make sure you know what you can claim for and what won’t be covered to make sure you’re getting the best income protection insurance for your needs.
If you’ve never heard of income protection insurance, don’t worry, you’re not alone. Income protection, also known as IP, is one of the most misunderstood types of insurance you can buy. It’s designed to replace your income if you cannot work due to illness or injury, but it isn’t protection against redundancy.
You may be on a low income or have a mortgage on a home that you have worked hard for. No matter how much money you have saved, what if you got ill or injured and couldn’t go to work for a while? Would you be able to pay the bills? Income protection insurance can help you to maintain your lifestyle and continue to pay your bills, even if you have to stop working. In a nutshell, income protection insurance is designed to replace some of your income if you are unable to work because of injury, illness or disability. Some policies will pay out when you are unable to work because you are at home looking after your family. The benefit you receive varies from policy to policy.
The monthly benefit you’ll receive each month if you claim. Insurers may cover up to 70% of gross income. The greater your level of cover, the higher your premiums.
How long the policy runs for. Usually, you set it to match your expected retirement age. The older the cease age, the higher your premiums.
How long you’ll receive monthly payouts if you fall ill.
When you index your benefit, your monthly payout rises each year in line with the growing cost of living (inflation). This means the purchasing power of your monthly benefit stays the same over time.
These are two very different types of cover. Income Protection Insurance pays a percentage of your gross salary as a regular payment until you can return to work.
Critical Illness Insurance provides some financial help, usually a lump sum payment, if you’re diagnosed with a critical illness that’s covered in your policy. These policies don’t generally pay out if you die and have no cash value at any time.
No – these are two different things. While Income Protection pays you a percentage of your salary if you’re unable to work due to illness or injury, Payment Protection Insurance (PPI) covers the repayments on a specific debt, such as a mortgage, loan or credit card.
Any money you receive from an Income Protection policy may affect your eligibility for Government means-tested benefits. Government benefits can change at any time.
Income protection policies pay out only once a pre-agreed period has passed, generally ranging from one to 12 months after you put in a claim.
The longer the ‘deferral’ period you choose, the lower your premiums. The default deferral period tends to be 13 or 26 weeks, but it can sometimes be as low as four weeks.
How an income protection insurer defines your inability to work will also influence if and when your income protection policy pays out.