Income protection insurance protects you against loss of income. Sounds simple, doesn’t it? But before you start looking for quotes, it’s probably best to consider our careful explanation of the subject – especially seeing as how it may differ from critical illness and accident insurance.
With income protection insurance, you sign a long-term contract. This contract outlines a policy which helps you if you fall permanently ill and are unable to work.
Broken down, income protection cover…
- …will replace at least part of your income – if you get too sick to work or become disabled.
- The pay out lasts until you can work again. Alternatively, it lasts until retirement, death or end of the policy’s term.
- You’ll have to undergo a waiting period before you start to get payments. This is something you choose when you sign the policy. The longer the intermediate waiting period, the cheaper your premiums will be.
- Most illnesses that leave you unable to work will be covered. Of course, definition depends on the policy you take out.
- While the policy lasts, recipients can claim as many times as necessary.
What’s the difference between critical illness cover and income protection insurance?
With income protection insurance, you will receive regular payments while unable to work. These payments could replace up to 70% of your salary, depending on the policy you take out. Another type of cover known as critical illness insurance offers something similar. However, it is only for if you become critically ill. In addition, you will only receive a single-lump sum. Income protection pays in regular salary-like instalments.
And of course, income protection insurance can also be taken out to protect you from unemployment and redundancy. But it is also possible to take out a second policy against these possibilities.
The Bare Necessities: Who really needs this type of cover?
You may be very well tempted to run out and get income protection insurance. That’s pretty understandable, especially if you have debts/loans or a mortgage to pay off. However, it is worth taking a step back and considering the other ways in which you might already be protected.
For example, maybe unemployment benefits you receive from the government are enough!
Of course, there are other points which could make income protection unnecessary:
- Your current employer may have a sick pay policy. Some employee benefits packages include 12 months of salary even if you are ill and unable to work.
- If you’re a scrimper and a saver, the amount you have in your savings account may very well be enough to get you by while you’re sick and/or unemployed.
- Depending on your age, early retirement may also be an option.
- You may be lucky enough to have a partner/family who can support you.
The income protection costs
Like any kind of cover, breaking down the costs is all dependent on a range of factors. The premiums you pay depend on circumstances and what your policy stipulates. In general though, income protection insurance is designed to cover a very broad range of illnesses and situations. In addition, payments are designed to last for years.
Age, job, smoker status (whether or not you use tobacco/nicotine products), percentage of income you want to cover, your waiting period before getting payments, current health and illness will all play a role.