Do I Need Income Protection Insurance and what is it?
Income protection insurance allows you to cover up to 70% of your wages; completely tax free, should you become unable to work due to illness, injury or disability, with protection covering you until 70 years of age or retirement.
With 1 million UK workers absent from work for 4 weeks or longer each year, can you be certain you won’t need time off sick or injured?
This is a more substantial alternative to Statutory Sick Pay (SSP) which your employer may or may not provide. However, this will only pay you the UK SSP rate of £92.05 per week. Could you pay all your bills and fund your lifestyle on this during a short or prolonged period of workplace absence?
There are different types of cover available that differ based on the length of the policy and other variables. It is important to understand the difference between them in order to find the right policy to suit your needs.
Which kind of Income Protection do I need?
This will depend on how long you require your policy to pay you an income. Short-term Income Protection policies cover you for up to 2 years, with long term policies covering you until 70 years of age or retirement if you cannot return to work. Both sets of policies allow you to cover up to 70% of your income.
If you are self-employed however, we will be able to cover up to 70% of your net profit.
Research indicates that more than half of UK adults (53%) have had to take unplanned leave from work through injury, sickness or unemployment, yet do not have financial backing in case it happens again.
Short Term Protection Policies
Short term protection policies cover you for a maximum of 2 years per condition per claim.
This means that for example; If you were to be signed off with stress for 2 years, we would pay you for the entire time. Once the 2 years is up you would need to return to work for 6 months and then you would be able to claim for the same condition again for a further 2 years.
If something else were to happen to you during that 6 months, say you broke your leg, you could claim again as it is a different condition.
Long Term Protection Policies
With a long-term policy, you can have greater peace of mind knowing that you are covered up until the age of 70 or retired should you unfortunately become seriously ill, injured or disabled and could never return to work.
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Making a Claim
If you claim on an Income Protection policy, there is a waiting period before it will start to pay out and you can usually choose how long you want this to be. This waiting period, usually known as the ‘deferred period,’ can range from 1 day to 104 weeks. Choosing a longer deferred period can help reduce the cost of premiums on your policy.
In 2017, figures state that 87.2% of all income protection claims were paid totalling over £600 million according to the Association of British Insurers (ABI).
If you have enough savings to cover 4 weeks of expenses, you can defer the policy to start until 4 weeks after your workplace absence in which it will then start paying you your covered wage amount until you return to work or otherwise.
How much Income Protection cover do I need?
You can insure 70% of your income tax free, the reason why it is 70% is because insurance policy writers cannot allow you to make a profit out of your misfortune.
Think carefully about how much you need each month to get by and calculate your expenses so that you don’t end up under-insured. If you are going for a longer-term income protection policy rather than shorter term, make sure you consider all your long term essential monthly outgoings such as your mortgage, loans and outstanding debt repayments as well as your normal lifestyle and utility bills and expenses.
Statutory Sick Pay
Before taking out your Income Protection cover, find out first what other benefits you are entitled to if you are unable to work. By law, an employer must pay most employees Statutory Sick Pay (SSP) for up to 28 weeks, and after that, you will probably have to depend on state benefits.
SSP is currently £92.05 per week in the UK, would this cover all your expenses such as a mortgage, utility bills, food and travel costs?
Some employers, however, have group income protection insurance in place for employees, so always look at your sick pay arrangements in your contract of employment first – that’s when you’ll need your cover to kick in – as soon as your income drops away.
It is important to note that you can receive your covered amount of income, up to 70% of your wage, on top of your Statutory Sick Pay. If you are entitled to receive SSP then you can also cover a lesser percentage of your income with a longer differed period to reduce your policy premiums further.
How Much Does an Income Protection Policy Cost?
Monthly premiums for Income Protection will depend on a variety of factors. The younger you are, the less expensive they are likely to be, as older people are more likely to suffer an illness.
Your job will also have a bearing on how much you pay. For example, premiums will be less for an office worker than they would for a miner, as office work is a much safer occupation.
Income Protection Insurance with Sick Pay UK starts from as little as 18p per day.
Smoking as well as a higher body mass index (BMI) will also bump up the cost of cover, as it is more likely that smokers will become ill.
If you have any pre-existing health problems, you can exclude them from your policy as insurers tend not to cover them. However, that would mean if you were to take time off for that existing excluded condition; such as diabetes, you would not be covered.
Also, if you have a particularly dangerous job, insurers are likely to consider you too high risk to insure.