Income Protection

What is Income Protection Insurance?

Income protection insurance, also known as ‘Permanent health insurance’, provides a tax free income if the policy holder becomes unable to work through illness or injury. An income is paid until retirement age, the end of the policy term or until the policy holder is able to return to work.

Once a claim is made, there is a delay (known as the deferment period) before payments start. You can choose how long the deferment period will be, typically from 1 month to 2 years. The longer the waiting period, the less your premiums will be.

There is a maximum insured income limit. Levels of income protection cover may vary but may be in the region of 50% - 65% of previous income.

Income protection insurance does not normally cover unemployment / redundancy. For unemployment cover see our Accident, Sickness & Unemployment page.

Why do I need Income Protection Insurance?

If you are an employee and you fall ill, your employer may pay your full pay for a few weeks and statutory sick pay for up to 28 weeks. After that, you would probably have to rely on state benefits.

State benefits are not generous. As a result you would see a substantial drop in your income if you were out of work for more than a few months because of illness or disability.

Income protection policies aim to provide an income (usually around 50% - 65% of your employment income) until you recover or you reach the end of the policy term or your retirement age, whichever occurs first.

What are the typical options available?

There are many different types of income protection policies available. You must make sure that you are aware of the different circumstances in which the insurance company will pay out, and perhaps more importantly, when it won’t pay out.

Some policies only pay out if you can't do any work, but you would have to be seriously incapacitated for you not to be able to work at all. Others cover being unable to do any work for which you are suited. The best policies will pay out simply if you can't do your normal job.

Most policies would pay out until your reach age 65 or when you have chosen the cover to end.

Policies can also usually be set up to allow the income paid, in the event of a claim, to increase in line with inflation.

Some policies will reduce the amount paid out if you receive state benefits or claim money under any other insurance policy.

How much will it cost?

Premiums are dependent on the monthly income required, age, current state of health, smoker status and occupation. The deferment period also affects the premium, with a shorter period resulting in higher premiums.

If your health is poor or your lifestyle is considered risky, you may be refused cover or have to pay a higher premium.

Some employers arrange group income protection insurance for their employees as a perk of their job, so you should check your benefits package before applying for a policy.

For further information and to obtain a FREE, personalised quotation please contact us.


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