Income Protection

Whether you are a single parent, one half of a team, a working mum or a stay-at-home dad, you have your part to play in supporting your kids and keeping the family going. If you became ill and had to give up work, what impact would this have on your household?

Income protection is designed to provide an income if this should happen. It can be a particularly helpful injection of money if you don’t have enough savings to fall back on and your sick pay has ended.

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How does income protection work?

There are different types of income protection available to you, depending on your needs. Short term income protection will offer a pay-out for a shorter length of time, usually one or two years. Short term income protection will usually cover lost earnings through illness or injury that mean you cannot work. In some cases it can also cover unemployment; so if you’re made redundant, the policy can replace your earnings for the time being.

Long term income protection will offer a regular income if you can’t work due to illness and will continue to pay out until you are well enough to return to work, or the policy term ends. This type of insurance will not cover redundancy. Long term income protection insurance can start from 5 years and can continue until retirement age.

If you were to claim on your income protection policy, there is something known as a waiting period before the pay-out begins. You can choose how long this waiting period, or deferred period is. Many people choose to defer the payment until their sick pay has ended.

Do you need income protection insurance?

Sickness, injury and redundancy are all things that most of us will experience at some point. They can impact your income massively, which can leave families worrying about keeping up with mortgage payments and everyday living costs. 

Circumstances such as not being able to work can mean you quickly burn through any savings. Income protection can provide that financial security for your family and your bank balance while you’re unable to work. If your family would struggle without your income while you are recovering, this type of insurance could be very beneficial.

How much income protection cover do you need?

The amount of cover you should apply for can depend on a number of factors; most importantly, your essential monthly outgoings including the mortgage, food and bills. The pay-out will not replace your exact income, but you can expect to receive around 60% of it.

Consider how much your usual take-home pay is and how much of it goes towards essential lifestyle costs. It’s important not to underestimate the amount of cover just to keep your monthly premiums low.

Cost of income protection insurance

Your monthly premiums for income protection can depend on a number of different factors, as with most insurance. Your age and your occupation are important, as younger people are less likely to suffer an illness. How safe or unsafe your job is will also play a role.

Smoking can increase the cost of income protection policies, as smoking increases your chances of becoming ill.

Income protection for self-employed

If you are self-employed, income protection is definitely something you should consider. This is because you won’t have access to the traditional employee benefits, and therefore won’t be entitled to sick pay or redundancy pay.

If you fall ill and are unable to work, the impact could be significant; especially if you have employees to pay. Income protection for self-employed can provide peace of mind that you can still meet your financial commitments such as your mortgage and staff salaries.

Income protection vs critical illness cover

Both income protection and critical illness cover can help to provide financial stability when you are unwell, but there are some differences in the two types of cover. Income protection is a form of replacement for your income, paying out regularly while you are unable to work. Critical illness cover provides one lump sum upon diagnosis of a serious illness.

Income protection can cover a number of things including injury, illness and redundancy. It has a broad range, while critical illness cover is much more specific. Critical illness cover includes various forms and stages of life-changing illnesses.

What’s more, with an income protection policy you have the chance to claim multiple times if you are unfortunate enough to encounter more than one incident of accident or illness. Once you claim on a critical illness policy, that ends the cover. 

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