Have you considered how you would keep up with your monthly outgoings if you couldn’t work? You may have some savings put away but if you find yourself unable to work for a long time, those savings could quickly disappear.
That’s what income protection is for, providing you with a regular tax-free income if an illness or injury prevents you from working. You work hard for your money and it makes sense to protect it. But, as that protection is another expense, you may be wondering, ‘Is income protection worth it?’
What is income protection insurance?
This type of insurance gives you a regular income if you find yourself unable to work because of an illness or an injury. It ensures that you can still cover your normal living expenses, such as your mortgage payments and other monthly bills.
With income protection, you can have peace of mind that a financial safety net is in place. That way, you can concentrate on your recovery instead of worrying about how you’re going to cope financially.
How does income protection work?
An income protection policy pays out a percentage of your salary, which is usually between 50% and 70%. Rather than being paid in a lump sum, such as with critical illness cover, it’s paid in regular monthly instalments. This helps you to keep on track with your usual monthly living costs. You can continue receiving these payments for a set period or until you return to work, retire, the policy term ends or you pass away, depending on the cover you choose.
Income protection payouts are not made by the provider straight away. There’s a pre-agreed waiting period, which can be as short as 4 weeks or as long as 2 years. This enables you to use other financial means you have access to first, such as sick pay benefits from your employer or savings that you want to use. The longer the pre-agreed waiting period, the cheaper the premiums.
Unlike some other types of financial protection, you can make multiple claims during the policy term.
What cover does income protection provide?
Income protection covers a wide range of illnesses and injuries. This is different from critical illness cover, which provides you with financial protection if you’re diagnosed with a serious illness that’s specified in your policy. With income protection, you’re covered for mental health conditions as well as physical ones.
You can choose short-term protection, such as 6 months to a year, or long-term protection, which gives you cover until you return to work, the policy ends, you retire or you pass away. Accident, sickness and unemployment (ASU) cover is a type of short-term protection. This provides you with cover should you be unable to work due to illness, injury or involuntary redundancy. Long-term protection covers you against illness or injury but it doesn’t provide protection for unemployment.
There are also different levels of income protection cover:
- Own occupation:Providing you with the highest level of cover, this pays out if you’re unable to do your specific job.
- Suited occupation:This covers you if you’re unable to do your own job or a similar one that you’re suitable for.
- Any occupation:This is the riskiest and cheapest level of cover because payments from the insurer are only made if you’re unable to do any job at all because of an illness or an injury.
Is income protection worth it?
Whether you’re single or have loved ones to look after, your income is one of your most important assets and should be protected. Life has a habit of taking unexpected turns and you could fall ill or suffer from an injury at any time, rendering you unable to work.
Income protection, therefore, can provide an essential lifeline, especially if you have limited savings, if any at all. But income protection isn’t necessarily suitable for everyone so whether it’s worth it for you depends on your circumstances.
When you should consider income protection
Income protection is definitely worth considering if you:
- Earn the main income in your household
- Have limited sick pay benefits from your employer
- Are self-employed
- Have dependents to support
- Have limited savings
- Want financial protection for a broad range of illnesses and injuries
When you might not need income protection
You may not need this type of cover if you:
- Have adequate funds to cover ongoing monthly costs if you’re unable to work
- Are already covered by income protection insurance as a benefit from your employer
- Already have an insurance policy that includes illness cover
- Have adequate sick pay benefits from your employer
- Can get financial support from your family or partner
Have peace of mind with financial resilience
When you’re suffering from an illness or an injury, the last thing you need is to worry about how to pay your bills if you cannot work. Income protection provides an essential buffer when you need it, removing any stress so that you can concentrate on your recovery.
Our mortgage and protection brokers are here to discuss your circumstances and protection needs. They can talk you through the details of income protection and levels of cover provided as well as the alternative options available. With impartial advice and tailored comparisons, you can make the right decision to meet your protection goals. Give us a call on 01322 907 000 to speak with one of our financial protection experts today.