What is Income Protection Insurance?
Income Protection Insurance sometimes known as Permanent Health Insurance, is a long-term insurance policy designed to replace a percentage of your income if you are unable to work due to illness or injury. Often the policy will begin to pay out after a deferred waiting period – generally when your sick pay or statutory sick pay ends – and will continue to pay you an income until you either return to work, retire, die or reach the end of the policy term, whichever is sooner. The replacement percentage you can expect to receive is around half to two-thirds of your normal pay before tax. This is because some money will be taken off for any state benefits you can claim. The income you get from the policy is paid tax free.
Income Protection Insurance should not be confused with Critical Illness Insurance which pays out a lump sum if you have a specific, serious illness.
Why should I consider Income Protection?
Because according to the Association of British Insurers (ABI 2017), one million people a year in the UK are unable to work due to illness or injury. You should consider whether you would be able to cope adequately on savings, state benefits or sick pay from work if you became ill. If not, then Income Protection insurance could be the answer. It could be particularly useful if you are self-employed and do not have sick pay as a back stop. It’s worth checking what your Employer will provide if you are off sick, especially if your employer offers company benefits as you may already be covered by a group income protection policy.
How much does Income Protection cost?
That will depend on your circumstances and the type of policy and percentage of income you’d like to cover. For example, it can be tailored for the self-employed or those looking for a short-term policy. Cost will also depend on a number of factors such as age, job, your general health, the range of illnesses and injuries covered by the policy and the waiting period before the policy pays out.
Please note that this information is not fully inclusive and is intended to provide general information only. It does not constitute personal advice. We recommend you talk to your Brunsdon Financial Adviser for further information and qualified advice.