Income protection buying guide

We are guessing that by finding your way on to our income protection buyer’s guide, you have either lost your way or you are looking to find out more about Income Protection and what it is. We hope it is the latter and you want to stay here to find out more.

Let’s start with a simple explanation of what it is – Income Protection insurance, as the name suggests – is put in place to cover your income if you were unable to work due to accident, illness or unemployment. It sounds simple enough, but it isn’t insurance that a lot of people know much about or indeed consider taking out.

Do I need income protection insurance?

Not by law no, but the question you want to ask yourself is “if you couldn’t go to work due to a serious illness, could you manage?” Taking into account you may not have any savings and have your outgoings to cover, the answer is probably no, you couldn’t manage without your income. This is why considering income protection Insurance could be of benefit to you.

A point to remember is that it is not the same protection as critical illness insurance, which pays out a one-off lump sum. Income protection insurance pays a percentage of your gross salary or take-home pay. You as the policyholder decide how much usually based on upto 70% of your monthly income .Some policies allow you to claim as many times as you need to, as long as the premiums are paid in full.

How would I know what type of policy would suit me?

Many factors can determine this. It can depend on how long you require your policy to pay you an income. As an example, there are Accident, Sickness and Unemployment policies, which are also known as ASU that will generally only pay out for one or two years.

There are many different ASU policies available, including Payment Protection and Mortgage Payment Protection Insurance. Payment Protection Insurance, as an example, usually meets the cost of a specific debt, preventing you from defaulting.

Mortgage Payment Protection is exactly as it states. it will cover the cost of mortgage payments, but generally for a limited time. In most cases, if you were to have one of these policies and they became payable, your insurer will pay you directly, not your lender. It would become your responsibility to make the payment or pay the debt.

Many Short Term Income Protection policies do not need to cover a specific debt; they can simply be used to fund your lifestyle in the event that you lose your income.

Long term income protection will usually provide you with a regular income if you are unable to work due to illness or disability until you are well enough to return to your employment, or the end of the policy term, whichever one happens first.

What doesn’t income protection insurance cover?

As with all insurance policies, there are exclusions. In the instance of income protection, there are specific illnesses or situations that will not be covered. Examples can include but are not limited to

  • a pre-existing medical condition (any illness you already knew about when you took out the policy)
  • normal pregnancy
  • self-inflicted injuries
  • disability or illness that is due to a criminal act
  • disability or illness due to the misuse of alcohol or drugs
  • disabilities or illnesses if you are involved in war, terrorism, invasion
  • unemployment that was known about when you applied for the policy

Your cover can also be compromised if you have a dangerous job or existing health problems. It is always best to be honest with any health concerns you may have. You may think you won’t get covered, but doesn’t mean you cannot be assessed. We welcome everyone to speak to us for advice and guidance.

How will I know how much protection I will need?

The main thing to think about here is don’t underestimate just to keep the cost of your premiums down, if the unfortunate does happen and you need to claim on your policy, you could be paying for the mistake in the long run. In most typical policies, you can insure up to 70% of your gross salary.

A tip to remember is not to think that you can make money from income protection insurance. You cannot insure more than 70% of your salary, as insurance cannot allow you make any profit out of your misfortune. Think about how much out of your wage you use to pay your outgoings and essential payments, food etc, this will help you figure out how much income protection to insure and base your premiums on.

Premiums can be calculated on a variety of factors, for example, your age, your health, your habits (i.e. smoking), your job and even your gender.