Guide: Income Protection -
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Income Protection

A comprehensive guide on income protection

What is income protection?

Income protection insurance does as its name suggests. If you have to take off work because of illness, an accident or lose your job (and it wasn’t your fault), this insurance will pay you an agreed upon income every month.

The payment you receive is there to cover your bills and regular payments until you get back to work. You choose in advance how much of your salary you wish to be paid if you need to claim, which is typically 50% of your normal monthly wage.

If you’re fired or deliberately harm yourself and therefore are unable to work, its unlikely you’ll be paid out.

Working with an Independent Qualified Advisor

Although the agreement is between you and the insurance underwriter, it's often common and beneficial to work with an Independent Qualified Advisor, who will act on your behalf to find the best deal on the market for your circumstance. The advisor will act as a bridge between you and the underwriters, so they will ask you the questions required by the underwriter to generate a quote. The advisor will be rewarded by getting a pay-out from the underwriter, often there would be no cost to you for the use of their service and you get the benefit of their access to the whole market, which won’t be accessible to you without them.
Find out more

Steps to taking out income protection

Fill in a web application

Fill in a web application

Speak to an independent advisor

Speak to an independent advisor

Find a product that works for you

Find a product that works for you

The cost of income protection insurance varies in every case.

Your Age

As with all insurances, the premiums you pay directly relate to the risk the insurance provider takes in covering you. The older we get, the more likely we are to get ill and so the greater the monthly premium.


Your Health

Health is another factor that can’t be ignored by insurance providers. If you are healthy and fit then, the cost will be lower. Your insurance provider will take a look at your medical history before they give you a quote for your plan.


Your Job

Did you think of this one? Probably not, but you need to remember that the kind of job you do is really important when it comes to the cost of an insurance policy. If you have a risky job that can damage your health or put your life in danger then the cost will be higher.


Waiting Period

Most income protection policies will start to pay you after 4 weeks, however, it could take much longer (up to 2 years in some cases). Insurers know that you may receive sick pay from work and so build this into their policies. If you’d like immediate payouts you can pay extra for this on your policy.


Lifestyle and Hobbies

This is something you will have to inform your insurance company of. They will do a background check on you before giving you a quote. If you smoke or drink heavily then you are at risk of getting ill and so your premiums will be higher.

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What are the different types of income protection?

There are several types of income protection options available in the UK:

Income Protection Insurance (IP): This is a type of insurance policy that pays out a regular income if you're unable to work due to illness or injury. It typically covers a percentage of your pre-tax income, usually around 50-70%, and the payments continue until you're able to return to work or reach a predetermined retirement age.

Critical Illness Insurance: While not exactly income protection, critical illness insurance provides a lump sum payout if you're diagnosed with a specific serious illness or medical condition listed in the policy. This lump sum can be used to cover medical expenses, rehabilitation, or other costs associated with the illness.

Payment Protection Insurance (PPI): This type of insurance is designed to cover specific debt repayments, such as mortgages, loans, or credit card payments, if you're unable to work due to illness, injury, or involuntary unemployment. However, PPI has been widely criticized for its mis-selling practices and has largely been phased out.

Government Benefits: In the UK, there are government benefits available to individuals who are unable to work due to illness or disability. These include Employment and Support Allowance (ESA) and Personal Independence Payment (PIP), among others. These benefits provide financial support, but the amount may be limited.

Company Sick Pay: Many employers offer company sick pay as part of their employee benefits package. This typically provides a certain amount of paid time off work due to illness or injury. The terms and duration of company sick pay vary by employer.

Self-Employed Income Protection: If you're self-employed, you can purchase income protection insurance tailored to your specific needs. This type of policy helps replace lost income if you're unable to work due to illness or injury.

Permanent Health Insurance (PHI): PHI is an older term used to describe income protection insurance. It's designed to provide a regular income if you're unable to work due to illness or disability until you either recover or reach a certain age.

When considering income protection options, it's important to carefully review the terms and conditions of each policy, including waiting periods before benefits start, the percentage of income covered, and any exclusions or limitations. Consulting with a financial advisor or insurance specialist can help you determine the best income protection solution for your individual circumstances.


How to identify the level of cover you require?

Deciding on the appropriate level of income protection cover involves careful consideration of your personal circumstances, financial needs, and potential risks. Here are some steps to help you determine the right level of cover:
  • Assess Your Monthly Expenses: Start by calculating your monthly living expenses, including essential costs like mortgage or rent, utilities, groceries, transportation, and insurance premiums. Factor in any discretionary spending as well.
  • Consider Existing Cover: Review any existing insurance policies or benefits you might have, such as employer sick pay, government benefits, or other forms of income. This will give you an idea of the coverage you already have.
  • Calculate Desired Replacement Income: Determine the percentage of your current income that you would like to replace if you're unable to work. This is typically around 50-70% of your pre-tax income. Calculate how much you would need to maintain your standard of living and cover your essential expenses.
  • Factor in Savings and Emergency Fund: Take into account any savings you have or emergency funds that could help cover your expenses during a period of income loss. This can help reduce the amount of coverage you need.
  • Consider Long-Term Goals: Think about your long-term financial goals, such as saving for retirement, paying off debts, or funding your children's education. Ensure that your chosen level of cover aligns with these goals.
  • Account for Potential Risks: Assess the risks that could affect your ability to work, such as the nature of your occupation, health history, and any hobbies or activities that might increase your risk of injury or illness.
  • Review Policy Features: Compare different income protection policies and their features, including waiting periods (the time before benefits start), benefit duration, and any exclusions. Make sure the policy meets your needs and provides the level of cover you're comfortable with.
  • Seek Professional Advice: Consider consulting with a financial advisor or insurance specialist. They can help you analyze your financial situation, provide guidance on suitable coverage levels, and recommend specific policies based on your needs.
  • Regularly Review and Update: Your circumstances may change over time, so it's important to review your income protection cover periodically to ensure it continues to meet your needs. Life events such as marriage, having children, or changing jobs can impact your coverage requirements.
Remember that finding the right level of cover is a personal decision that depends on your individual circumstances and risk tolerance. It's important to strike a balance between having adequate protection and managing the cost of premiums. Taking the time to thoroughly evaluate your situation and seeking professional advice can help you make an informed decision about your income protection needs.

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