Income protection explained

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Income protection is a type of insurance that pays out if the policyholder is out of work through illness or accident.

Most households have regular bills to pay each month, Probably, the largest regular expense is the mortgage repayments or the rent, followed by energy bills and council tax. There is also the weekly food shop, clothes to buy, appliances to replace if they break down, and transport. Most wage earners work hard, but expect to have enough money for an active social life and holidays.

Careful budgeting means that many families have a comfortable lifestyle. Households rely on one or more members of the household having a full time income to pay the bills. If a household member loses their job then this affects things greatly, and impacts on all aspects of day-to-day living.

The solution to ease the financial burden because of a job loss is to take out income protection insurance.

What is covered?

An income protection policy pays out if you cannot work because of illness or injury. Some policies will also cover you if you are made redundant from your work.

How much is paid out?

The policy will provide regular payments equal to a percentage of your normal salary depending on the level of cover bought. There is normally a waiting period of between one to twelve months before payments start. It is advisable to have savings that can be used to pay the bills during this waiting period.

How long do payments last?

Once payments start they last until the policyholder returns to work or the policy runs out. If the policyholder dies then payments will stop.

How much does income protection insurance cost?

Policy costs are based on the type of cover and the individual circumstances of the policyholder. Age and health form part of the policy cost calculations, and smokers will pay more than non-smokers. The cost also depends on the amount covered, the length of the policy and the length of the waiting period before payments start (the deferral period).

For example, a 25-year-old man who wants cover until the age of 60, could pay £10 a month for a 52-week deferral period or £23.50 a month for a four-week deferral period. This is a rough guide as actual premiums will vary,

There are also policies available for self-employed people.

How to purchase income protection

Before you buy a policy, check with your employer about their sickness benefits or redundancy packages. Income protection can be the perfect complement to this.

If you decide that income protection is for you then consult a broker who can discuss your options then find the best provider and policy for you. A broker can also advise on alternative and additional cover such as life insurance, mortgage protection insurance and critical illness protection.

Contact Ascot mortgages to discuss all your insurance needs. Ascot mortgages are experts in matching their clients’ individual circumstances to the best and most competitive priced policies.

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