Income Protection Awareness

Income Protection is an insurance policy which provides cover in the event of being unable to work due to accident, sickness or disability. Income Protection Awareness Week has run in the week just gone with various articles, videos and statistics providing information about the policy. This week’s blog to take a closer look at income protection.

Statutory Sick Pay (SSP) currently stands at £99.35 per week and is paid by your employer for up to 28 weeks should you be unable to work due to medical reasons. For most people, this doesn’t scratch the surface of what is needed to maintain mortgage payments, rental payments, household bills, childcare costs – all before ensuring you have enough money to maintain a quality of life for you and your family.

Income protection exists for when the money stops but the bills don’t. It’s arguably the most valuable of all policies under the life insurance umbrella. Income protection pays a tax-free monthly amount if you’ve been signed off work by a doctor because of any medical reason, typically related to accident, sickness or disability. If required, cover can last until your anticipated retirement age, after which time you’d no longer be dependent on the income that would’ve been from your employment.

Income protection is a lesser-known policy compared to critical illness cover which is why initiatives such as Income Protection Awareness are run. As with all life insurance policies, there is no requirement for you to have income protection. People choose not to take the cover as they are not aware it’s an option, they are willing to risk never being unable to work for a prolonged period or they simply cannot afford the monthly premiums. In relation to cost, the policy has many variables which can be manipulated to make the most appropriate and cost-effective policy.

Monthly Benefit – Insurance providers will typically limit you to between 60-70% of your gross salary. How much you’re covered for is therefore dictated by your income as well as the level of cover you wish to have. The larger the level of cover, the higher the monthly premium.

Policy Term – A policy would typically be taken until your anticipated retirement age, after which time you’d no longer be dependent on the income from your employment. The longer the policy term, the higher the monthly premium.

Deferred Period – Representing the time between the point of claim and when the policy begins paying out. This is typically set to match any additional sick pay provided by your employer or how long you anticipate you could manage before requiring the policy. The longer the deferred period, the lower the monthly premiums.

Short Payment Period – A short payment period will pay out for a limited time after a claim, typically for 1, 2 or 5 years, rather than until the end of the policy term. If a policy which pays out until the end of the term is too expensive, a short payment period is better than nothing. Many people who claim on an income protection policy do return to work.

Occupation Definition – An own-occupation definition means the policy will pay out if you are unable to do your current role due to medical reasons. This is the most popular but also the most expensive option. A suited-occupation definition policy pays out if you are unable to do any role your experience and training aligns with. An any-occupation definition policy pays out only if you are unable to do any job at all. It is essential to ensure you are aware of the occupation definition on any income protection policy you have or are considering.

Income protection is there to provide peace of mind that should you be unable to work, you and your family are financially protected. Income protection is purely about maintaining your mortgage, household bills and a quality of life for you and your family, should you ever be unable to work. For more information on income protection or any other mortgage and life insurance queries, we’re here to help with free, professional advice.