LONG TERM INCOME PROTECTION

What is long term income protection?

Long-term income protection is like a backup plan for your paycheck. If you get really sick or hurt and can’t work for a long time, or even ever again, this insurance helps by paying you a part of your monthly income.

It keeps paying you until you can work again. But if you can’t return to your job, it will continue to pay until you reach retirement age or until the policy’s time is up.

In short, it’s there to make sure you still have some income coming in if a health problem suddenly stops you from working.

What does long term income protection cover?

Long-term income protection is specifically designed to provide financial assistance if you’re unable to work due to illness or injury. It covers the gap left when your employer’s sick pay ends or after a waiting period you agree upon when setting up the policy.

This insurance typically pays a monthly sum, tax-free, which ranges from 50% to 70% of your usual income. The coverage continues providing this support until one of the following happens: you’re able to return to work, you reach retirement age, the policy term concludes, or in the event of your death.

Moreover, many policies offer the flexibility of multiple claims. This means if you recover, go back to work, and then become unable to work again due to another illness or injury, the policy can be activated again to provide the same financial support.

What can long term income protection be used for?

The money you receive from long-term income protection is tax-free and you can use it in any way you see fit. It’s mainly intended to help you keep up with your usual expenses, including things like:

• Your mortgage or rent payments
• Household utility bills
• Credit card and loan payments
• Costs related to childcare
• Expenses for fuel and transportation

Who needs long term income protection?

Deciding whether to get long-term income protection is a personal choice, but you might want to think about it if you:

• Don’t have enough savings to support yourself if you couldn’t work
• Work for yourself
• Have a family or a partner who depend on your income
• Work 16 hours a week or more
• Don’t have income protection as part of your work benefits
• Are likely to receive little or no sick pay from your employer
• Don’t already have a similar type of coverage, like mortgage payment protection

Income protection can be an essential support for anyone who would find it hard to cover their expenses if they couldn’t work for a long time.

How long does long term income protection last?

When you arrange a long-term income protection policy, you often have the option to select the benefit term. This term defines how long your policy will last and for how long it can provide payments.

Typically, most long-term income protection policies are set to continue until you reach retirement age. However, some insurance providers might give you the flexibility to choose a specific age at which your income protection will end.

Usually, it’s logical for the coverage to conclude at your retirement, since you wouldn’t need to protect your income after you’ve stopped working.

How much of my income will it cover?

The amount of coverage you get from a long-term income protection policy often depends on a set percentage of your salary.

When you sign up for the policy, you’ll decide on this percentage. Typically, providers offer coverage ranging from 50% to 70% of your monthly income.

For instance, if your yearly salary is £50,000 and your policy covers 60%, you could receive up to £30,000 a year, tax-free, if you’re unable to work due to health reasons.

Keep in mind, some insurance providers might offer a higher percentage for a certain part of your salary, and a lower percentage for the amount above that. That’s why it’s a good idea to look around and compare different policies to find the most suitable fit for you.

What types of long term income protection can I get?

When you’re picking out a long-term income protection policy, you often get to choose from different types of incapacity coverage:

• Own Occupation: This covers you if an illness or injury stops you from doing any part of your specific job. It’s usually the most thorough type of cover, but also the most expensive.
• Suited Occupation: With this policy, you’ll get coverage only if your health stops you from doing any job that fits your education and training.
• Any Occupation: This offers the least coverage. It only pays out if your injury or illness makes it impossible for you to do any work-related tasks, like writing with a pen or using a computer.

How much does long term income protection cost?

The cost of long-term income protection varies based on the policy you choose and your own situation. Insurers consider several factors to figure out your premiums:

• Your Age: Getting coverage when you’re younger usually costs less.
• Your Job: If your job has a higher risk of injury or illness, the insurance will be pricier.
• Smoking Status: Being a smoker can increase your premiums since it’s linked to health risks.
• Hazardous Hobbies: Activities with a higher risk of injury, like skydiving, will raise the cost of your insurance.
• Medical History: If you have certain pre-existing health conditions, it may increase your premiums or make it difficult to get insured.
• Policy Length: Policies that cover you for a longer period are typically more expensive than short-term options.
• Deferred Period Length: The longer you wait for your insurance payments to start, the lower your premiums will usually be.
• Type of Incapacity Cover: More comprehensive coverage, like own occupation policies, will cost more compared to those with less coverage.

Are there any exclusions?

Income protection is a great safety net, but it doesn’t cover every scenario where you might find yourself unable to work.

It’s important to read the terms and conditions of your policy, but usually, there are some common things it won’t cover, such as:

• If you’re out of work because you’re unemployed.
• Injuries you cause to yourself on purpose.
• Not following the advice of a doctor.
• Illnesses or injuries caused by drug or alcohol misuse, pregnancy, criminal activities, or war-related events.
• Not telling your insurance provider if you switch jobs.

Can I get long term income protection if I’m self employed?

Absolutely, if you’re self-employed, you can definitely get long-term income protection. It’s even more crucial for you since you don’t have sick pay from an employer to rely on.

But to qualify for this coverage, you’ll likely need to show at least a year’s worth of audited accounts. This is to prove your average income, which the insurance will be based on.

How do I choose the right long term income protection policy for me?

Choosing the right long-term income protection policy involves considering several factors to match your needs and budget:

The Deferred Period

This is the time you have to wait before the policy starts paying out, ranging from four weeks to about a year, depending on the insurer. Consider if you’ll get sick pay, how long it might last, and when you’d need the insurance to start.

The Type of Cover

‘Own occupation’ cover is the most comprehensive, ensuring you’re not forced into a different job if you can’t do yours due to illness or injury. It’s generally more expensive but offers better claim potential.

On the other hand, ‘suited occupation’ or ‘any occupation’ cover is cheaper but offers less protection and makes it harder to claim unless you’re unable to do any work.

The Payment Period

This defines how long you’ll receive payments while out of work. Options vary from five years to up until retirement, depending on the provider. Longer payment periods usually mean higher costs. Consider factors like dependents when choosing.

The Type of Premium

The cost is a big factor, and you’ll encounter different premium types:

• Guaranteed premiums stay the same throughout the policy.
• Reviewable premiums might change after the first five years and then annually, possibly leading to higher costs over time.
• Age-banded premiums increase as you age, but at a predictable rate.
• Inflation-linked premiums adjust yearly with inflation, affecting both coverage amount and premium cost.

Retirement Age

Most policies end at retirement age, but the specific age limit can vary between insurers, from 65 to 70 years. Choose a policy that aligns with your planned retirement age.