WHAT IS INCOME PROTECTION?

How does income protection insurance work?

Income protection insurance helps you out with regular money if you can’t work because of sickness or an accident. Here’s how it works:

• Pays Part of Your Income: If you can’t work, this insurance gives you between 50% and 65% of the money you usually earn.
• How Long It Pays: You’ll get these payments until you can go back to work, or until other situations like retiring, the end of the insurance period, or in case you pass away.
• Covers Many Illnesses: It’s good for different kinds of sickness or injuries that stop you from working, whether it’s for a short time or longer, depending on what your policy says.
• Claim More Than Once: You can ask for money multiple times while you have this insurance.
• Waiting Period: There’s a set time you have to wait before the money starts coming, usually from 4 weeks up to a year. If you choose to wait longer, your monthly cost for the insurance can be lower.

Remember, this isn’t the same as critical illness insurance. That kind gives you a big amount of money all at once if you get really sick with certain illnesses, but income protection gives you ongoing money for a wider range of health issues that stop you from working.

When do you need income protection insurance?

Sometimes we think our job will still pay us if we get sick or have an accident and can’t work. But the truth is, many people only get basic sick pay for a short time, often just six months.

Here’s why and when income protection insurance can be a real lifesaver:

• Limited Employer Support: Most jobs won’t pay your full salary if you’re off work sick for more than a few months. Check what your job’s policy is for long-term sickness.
• Covering Your Bills: Without your usual income, it can be hard to pay important bills like your mortgage, rent, or electricity. This is especially true if you don’t have a lot of savings.
• Self-Employed Challenges: If you work for yourself, you probably don’t have any sick pay at all. This insurance is even more crucial for you.

Think about how losing your income would affect your life. If it would make things really tough, then income protection insurance is a smart choice to keep you covered.

Who doesn’t need income protection insurance?

There are certain situations where income protection insurance might not be necessary for you.

You might not need income protection insurance if:

• your job’s benefits package includes long-term sick pay (like covering your income for a year or more), you might not need extra insurance.
• government benefits are enough to handle all your expenses, then additional insurance might not be crucial.
• you’ve saved a lot of money that can last for a long time, you might be able to do without this insurance. But remember, your savings could need to stretch further than you expect.
• you’re in a position to retire early and have enough retirement funds, then income protection might not be as important.
• your partner or family can financially support you in a way that covers all your needs, this could reduce your need for such insurance.

In each case, it’s important to carefully consider how long you could manage without your income and whether these alternatives would fully cover all your expenses and financial commitments. It’s all about balancing your current safety nets against the potential risk and duration of income loss.

How much does income protection insurance cost?

The monthly cost of your income protection insurance is tailored to your unique situation and the specifics of the policy you choose. It’s crucial to look at different insurance providers to see what they offer, as coverage for illnesses, conditions, and situations can vary.

Key Factors Influencing Cost:

• Your Age: Younger individuals often pay less, as they’re generally considered lower risk.
• Your Job: The nature of your occupation can affect your premiums. Riskier jobs typically lead to higher costs.
• Smoking Status: Current smokers, or those who have smoked in the past, usually face higher premiums due to increased health risks.
• Income Coverage Level: How much of your income you want to cover influences the price. Covering a higher percentage of your income will generally increase the cost.
• Waiting Period: The length of the waiting period before the policy pays out impacts the cost. Longer waiting periods can reduce the premium.
• Coverage Scope: The range of illnesses and injuries covered can affect the price. More comprehensive coverage typically costs more.
• Health Factors: Your current health, weight, and family medical history are taken into account. Better health often leads to lower premiums.

Premium Types:

• Standard Premiums: These can be adjusted by the insurer over time. They might start lower but can increase based on various factors.
• Guaranteed Premiums: These remain the same for the duration of your policy. They might be slightly higher initially, but they offer the certainty of fixed costs in the long run.

Many people prefer guaranteed premiums for their predictability, even though they may be more expensive initially. It’s important to weigh the immediate cost against the long-term predictability when deciding which type of premium is right for you.

How do I buy income protection insurance?

The cost and criteria for income protection insurance can vary significantly between insurers, so it’s important to shop around and research thoroughly.

Consulting an independent financial adviser or a specialist broker can be extremely helpful. These professionals can guide you through the details of various policies and help you choose the one that best fits your needs.

Keep in mind that these advisors might charge a fee for their services, or they could be compensated through commissions from insurance companies.

For those who have had difficulties in securing insurance, perhaps due to a medical condition or a high-risk occupation, specialist brokers and insurers are available. They offer tailored solutions that standard policies might not cover, providing options for those with unique insurance needs.

The goal is to find a policy that offers the right balance of adequate protection and affordability, and professional advice can be key in navigating this decision.

Four important things to think about when buying income protection insurance

1. Be open and honest about your medical history
2. Choose the right level of cover for you
3. Check all the details
4. Keep your cover up-to-date

How to cancel income protection insurance

You can ask your insurer to cancel your policy whenever, but If you want to cancel your insurance, here’s what to keep in mind:

• If you get a new policy when you’re older, it could cost more.
• A new insurance might not cover health issues you already have.
• Once you cancel, you can’t restart the same policy.
• You won’t get back the money you’ve already paid, but you won’t have to pay any more either.

Just call your insurance company and tell them you want to cancel. It’s a simple process.