Income Protection Insurance

Income Protection is essentially a “wage insurance” against long term illness or injury resulting in your absence from work. It pays a proportion of your earnings every month – normally up to 65% – until you are ready to go back to work or until the end of the term of the policy.

The length of time the policy will pay out for is determined at the outset and is normally set for your chosen retirement age.

Income Protection protects a proportion of your monthly income, so you have money available to pay all of your essential bills if you are unable to work due to ill health or injury.

On application you will be asked how long you want the cover to last. Some people choose terms of a couple of years whilst some choose for payments to last until retirement. It’s important that you talk to a financial adviser to work out what’s best for you.

There are a number of major differences between Income Protection and Payment Protection Insurance.

Firstly, Payment Protection Insurance tends to be short-term, providing you with cover for a set period (normally a maximum of two years). This means that If you have PPI and you’re unable to work for more than two years due to illness or injury your policy will stop paying out and you’ll be left without cover. Income Protection will pay for as long as you have determined within your policy. This could be retirement age.

Income Protection is medically underwritten at application and invariably offers a stronger occupation definition when it comes to making a claim. Income Protection provides the option for “own occupation” cover. This means that your plan will pay out if you cannot perform your specific job. Most payment protection policies, on the other hand, use an inferior definition, such as suited occupation or even activities of daily living. This means that you may find it harder to make a claim.

Lastly, unlike Income Protection Providers, PPI insurers do not usually publish their payout rate. This makes it difficult to compare insurers or find out how good they are at honouring claims.

This can vary from provider to provider and will depend on a number of factors. Some of these are within your control i.e. the level of cover you require and how long you want it to pay out for whilst others will depend on your medical history and your personal circumstances.

You might choose to match your income exactly or, if you want to cut the cost of your premiums, you may want to adjust your cover to match your outgoings. You might also want to adjust the deferment period – the amount of time you have to wait before your policy will pay out.

You might also want to adjust the age up to which you are covered. Reducing your policy end date from 65 down to 60 will have a huge impact on cost but this is due to the fact that it is far more likely that you’ll make a claim at this time.

Taking financial advice can be massively important in determining what’s the best deal for you.

No. Because you pay your premiums from taxed income, there’s no tax to pay on the benefits.

You should take advice on this because what’s right for you generally depends on your circumstances. You might choose one over the other or, indeed, you might choose to have both.

If you’re looking to cover your monthly outgoings, Income Protection Insurance might be the smartest choice. Most Critical Illness Insurance policies usually cover around 40 to 50 medical conditions, whilst Income Protection covers any medical condition provided it stops you from working. Another thing to bear in mind is that Income Protection Insurance pays you a monthly income if you can’t work, whereas Critical Illness Insurance pays out a single lump sum. If you’re unable to return to work, this sum may not be sufficient to last until retirement.

If you can afford to have both, you can be sure that you’ll have your bases covered: Your monthly outgoings would be covered and in the event that you develop a critical illness, you’ll also receive a one-off lump-sum payment, which could be used to pay off debts, make home modifications or bring forward a few plans or life experiences.

In short, yes. Most providers have an excellent record for paying claims.

When speaking to an adviser, make sure to ask about the proposed providers claims history.

If you need to take a break from work because of illness, Statutory Sick Pay (SSP) can keep you covered for a short time, but severe illnesses and injuries could take months or years to recover from and, in this event, Income Protection Insurance could provide valuable back up.

Whilst you may be eligible for state benefits, the amount you receive is not determined and can vary dramatically. Benefits can also, depending on your circumstances be difficult to apply for and receive and, if you were to rely on them, you could find yourself in financial hardship. In most cases, Income Protection can be a more reliable solution.

No.Your Income Protection policy is designed to pay out in the event of ill health or injury preventing you from being able to work.

Some providers may include unemployment cover, but you will need to talk to a financial adviser about this.

Absolutely; and as a rule of thumb, it’s probably a good idea!

If you’re a sole trader, you can cover a portion of your profits before tax whilst company directors can cover a portion of their salary and dividends combined.

If you’re self-employed or run your own business, it’s really important that your talk to a financial adviser about Income Protection. There are many ways in the cover can be arranged that can add real benefit to your position.

No, the premiums are the same so, if you talk to us, you’ll be also be getting independent financial advice at no cost.

We’ll help you select the right provider for you, we’ll save you the hassle of filling out loads of forms and be there to look after you if you need to make a claim.

We’re also here to look after all your other financial needs: pensions, mortgages, life assurance and savings and investments.