Income Protection

Why Should I Get Income Protection?

Virtually anyone who works for a living should consider an income protection policy. Yet on average, most people are far more likely to have life insurance or critical illness cover than an income protection plan.

But income protection is more likely to be needed than other types of personal protection, because it covers a wide range of injuries, ailments and circumstances that could stop you working.

Just take a look at data published by the UK Government and the Office of National Statistics (ONS) for 2013, and you’ll quickly see why income protection is so valuable. For example

• There were 59 serious injuries caused by Road Traffic Accidents every day in the UK.
• More than 960,000 people were on sick leave for over a month.

And if you’re self-employed, income protection is virtually essential. Who else is going to cover the bills if you’re unable to work through illness or injury?

Even if you’re a company employee, chances are you’ll only get full pay from your company for a limited time before you’re moved onto Statutory Sick Pay (SSP) of just £88.45 a week (2016 rates). This only gets paid for 28 weeks before you’re on your own and drawing benefits.

How long could you survive on £88.45 a week?

If the answer is "not long" then you want to think about income protection insurance.

3 Things Income Insurance Protects Against...

• An illness that stops you working for an extended period.
• An injury caused in virtually any circumstances that prevents you carrying out your job.
• Forced redundancy.

How Does Income Protection Work?

An income protection plan will secure a percentage of your gross income, normally around 50% - 70% of your total earnings before tax. You get a percentage of your gross salary (not the full amount before tax) because Income Protection gets paid tax-free.

Income protection plans have a ‘deferral’ period, which can be thought of in similar terms to the excess on your car or contents insurance. The deferral period is a pre-agreed delay between the day you become unable to work and the time you make a claim. This will normally be somewhere between one and six months, although some insurers can reduce this to as little as 7 days (in return for a higher premium).

Exactly like the excess on your car or contents cover, your chosen deferral period has an impact on the cost of your income insurance – an income protection plan with a six-month deferral period will be much cheaper than a plan with a one-month deferral. You could even request a plan with virtually no deferral period at all – although this has a considerable impact on affordability.

When you make a claim on Income Protection, you’ll be asked to provide evidence of your reason for being off work (hospital or GP reports, or whatever is relevant to your claim) and you’ll then get a monthly payment, tax-free, at whatever figure you agreed when you took out the policy.

Importantly, this payment usually continues until you’re able to return to work. And if you suffered an injury or illness that stopped you working for life – then you’ll continue to get a pay-out until you die or reach statutory retirement age, whichever comes first.

This makes income protection the single most valuable type of cover you can buy, because it gives you real peace of mind that you’ll have the bills and mortgage covered no matter what.

Most people don't realise that 98% of all protection claims are paid every year in the UK. So as long as you’re clear about your deferral period and what’s not covered (talk to your adviser about any exclusions) then you’ll be secure in the knowledge that your income is protected.