What is Income Protection Insurance?

what is income protection insurance

If you’ve come to this article looking for advice on income protection, then you’ve come to the right place.

Income protection is a type of insurance policy that covers you if you’re no longer able to work due to falling ill or suffering from an injury. 

Formerly known as permanent health insurance, income protection cover typically pays out until you return to work, until you retire or upon your death – it all depends on your specific policy’s terms and conditions.

In this guide, we explain all you need to know about income protection cover to help you make an informed decision as to whether or not you want to purchase it.

What does an income protection policy cover?

Income protection is a type of salary insurance that will essentially pay you a regular income if you’re no longer able to work as a result of an illness or injury.

In the event that you suffer from a long term illness or disability, you can benefit from income protection cover either until you return back to work, retire or, unfortunately, die.

So, if you’re wondering if you really need income protection insurance, the simple answer would be yes.

According to a study conducted by Which?, only 9% of people have some kind of income protection cover, whereas 41% of people said they have life insurance and 16% of people claimed that they have private health insurance.

The question of “is income protection worth it?” can only really be determined by you. A typical income protection policy will cover things like hospital bills, some type of life insurance cover, payments even if you go back to work (if you go back part time for example, and you’re not earning as much as you used to), plus numerous other things. It all depends on the type of income protection insurance policy you take out.

Types of income protection insurance

Speaking of the different types of income protection insurance, there are a few different ones that you should be mindful of when considering taking out a policy.

We’ve outlined some of the most common types of income protection insurance policies that you’re likely to come across below.

Accident, sickness and unemployment (ASU)

This type of income protection insurance is renowned for being the most comprehensive type of policy you can obtain.

It offers you protection in the event that you suffer from an accident and cause injury to yourself, meaning that you’re no longer able to work, you face unemployment (if you lose your job through no fault of your own) and also in the event that you fall sick and are too ill to be able to work.

It depends on the insurance provider that you choose, but most ASU policies are short-term and will usually last between 12 and 24 months. You can typically receive up to 50% of your salary each month.

Unemployment only

This type of income protection insurance does exactly what it says in the name; it provides cover for involuntary redundancy for up to 12 months as a substitute to your regular income, so you can pay for things like your household bills and expenses and other outgoings you may have every month.

This type of policy offers you peace of mind if becoming redundant is a concern to you; it will protect you in the event that this happens.

Mortgage payment protection insurance

This specific type of policy is designed to help you pay your mortgage repayments for usually 12 months (or until you can return to work) so that you have peace of mind that your home is protected and paid for in the event that you cannot work due to an accident or sickness.

Payment protection insurance

This is another type of short-term policy that is designed to help you pay for monthly debt repayments such as loans, credit cards and mortgages in the event that you can’t work.

This type of policy is worth having if you have outstanding debts that you know you won’t be able to pay if you’re unexpectedly unable to work due to an accident, illness or having been made redundant involuntarily.

Does income protection cover you if you lose your job?

Income protection insurance will cover you if you lose your job through no fault of your own. For example, if the company you’re working for goes into administration or if you become involuntarily redundant.

However, it won’t cover you if you get fired from your job due to things like fraud, misconduct or dishonesty, or if you quit your job on your own accord.

Self-employed income protection

If you work for yourself, it’s highly likely that you don’t necessarily have a set income each month. Most self-employed people’s incomes fluctuate on a monthly basis, so it can be hard to determine how much you earn and therefore, how much you need cover for.

However, it is possible to obtain income protection insurance if you’re self-employed. Your policy would most likely cover expenses such as mortgage repayments, any loans or debts you have as well as any employees’ salaries that you may be liable to pay.

Income protection for self-employed workers will usually cover around 50%-60% of your average monthly income, so it’s always recommended to try and have some savings as well as relying on income protection insurance when you’re self-employed, so that you’re covered for every eventuality if you’re no longer able to work for a while due to an illness or accident.

All the different types of income protection insurance are there to make your life easier if you’re no longer able to work for different reasons. Each policy will provide cover for different eventualities and scenarios so it’s important that you determine the risks and the issues that you’re most likely to face if you suddenly can’t work anymore for whatever reason.

It may be the case that you need cover for all sorts of things such as mortgage payment protection insurance, as well as accident, sickness and unemployment, too. 

For further information and advice regarding income protection and life insurance, be sure to read our useful guides below.

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