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Income Protection

What is income protection Insurance?

Income Protection insurance is designed to secure your lifestyle by protecting your ability to pay bills, if you are disable through sickness or injury. It is particularly important if you have financial liabilities, or family to support.

Many people have jobs that either does not pay them if they are off work or only pays them for a limited time. What would you do to meet your outgoings if you were off for a long period time or unable to go back to work due to illness or disability?  Income protection can fill this gap.

What is income protection?

Income protection pays out if you're unable to work due to sickness or accident. Formerly known as permanent health insurance, long-term income protection pays out until retirement, death or your return to work, while short-term income protection pays out for a set period, usually between one and five years.

Payouts are usually based on a percentage of your earnings: 50% to 70% is the norm, and payments are tax free. Income protection policies only pay out once a pre-agreed period has passed, generally ranging from one to 6 months after you put in a claim.  The longer the 'deferral' period you choose, the lower your premiums

Types of income protection policy

Long-term income protection policies pay out until a fixed age, death or your return to work, and they're underwritten at the point of applying for the policy, rather than when you put in a claim. This means you'll know exactly what you\u2019re covered for from day one, as well as any pre-existing conditions you're not insured for.

Types of long-term income protection include:

  • Guaranteed: Premiums won't go up unless you increase the level of cover. These policies are the clearest.
  • Reviewable: Can be cheaper at the beginning of the policy term, but the price can go up after a set number of years or with as little as 30-days' notice.
  • Age-related: The premium starts cheaper but goes up by a pre-agreed amount each year as you get older.

How much does income protection cost?

Premiums can vary hugely and depend on a range of factors:

  • Occupation: most insurers group jobs into four categories of risk. For example, clerical workers will usually be in group one, shop assistants in group two, plumbers in group three and construction workers in group four.
  • Deferral period: the longer you can wait to receive a payout once you've put in a claim, the cheaper your premiums will be.
  • General state of health: pre-existing conditions will often be excluded, but some insurers may cover you in exchange for higher premiums
  • Whether you smoke: most insurers will charge you much more if you're a smoker.
  • The level of cover you need: Subject to maximum cover levels, the higher the level of protection you choose, the more you'll pay.

Reviews and Ratings for Financial adviser Matthew Duncan, Derby