Income protection cover is a type of insurance that pays out a percentage of your salary if you cannot work through injury or illness, and is something most workers should take out. Payments are made until you return to work, retire or die.
Income protection is not PPI
Some people have been put off taking out income protection cover because they confuse it with PPI, which often provides limited cover. PPI is used to repay a particular debt, whereas payments from income protection policies can be used for anything.
State benefits are not enough
If you are ill and unable to work, you are entitled to the sick pay state benefit, but the amount paid is small compared to the average wage. Some employers will support workers off sick, but few will provide support for more than a year.
If you suffer a long-term illness or injury, your benefit entitlement will be well below that of your salary.
Why you need income protection cover
If you want to keep up with the mortgage payments and other household bills when off work, income protection will provide the financial assistance you need. Illness and injury cause stress, which can increase if you are also worrying about paying the bills. Income protection cover gives you the peace of mind in knowing that keeping up with the household expenses is one less thing you need to worry about if you become ill or have an accident.
If you have sufficient savings or your partner has a large income, you may think that you do not need income protection cover. However, many households will find it financially difficult if a wage earner cannot work for more than a year.
The payment levels
Income protection cover will pay between 50% and 70% of your salary depending on the level of cover you choose. Unlike a wage, there are no tax and national insurance deductions on the amounts paid out.
Most policies have a deferral period, which means that it will be between one month or a year before the policy starts paying. The longer the deferral period, the less the insurance costs. If you can survive on a combination of sick pay, employer support and your savings for a few months, you may choose to a long deferral period.
One blessing of income protection cover is that it is straightforward to claim and most claims are paid out with minimal fuss.
Buying income protection insurance
There is no set policy cost for income protection insurance. The premiums will mainly depend on age and occupation. Some jobs are regarded as higher risk. Construction workers will pay more than low risk office staff, and smokers will pay more. All insurance companies will require you to declare any existing medical conditions.
There are policies available for the self-employed too.
Talk to Ascot Mortgages for further advice on income protection insurance. We will search a wide range of insurance providers to find the best cover for you.