Income Protection PDF Print E-mail

Income Protection can help you maintain your and your family's standard of living by providing a monthly income should illness or accidental injury prevent you from working.

Income protection insurance pays out an income if you are unable to work because of illness or injury. Its aim is to help you while you have a loss of income and are unable to carry out your normal work related duties providing the payments do not put you in a better financial position than if you were at your normal employment.

It does not allow you to make a profit out of your misfortune. So the maximum amount of income you can replace through insurance is broadly the after-tax earnings you have lost less an adjustment for state benefits you can claim. This is usually translated into a maximum of 65% of your before-tax earnings.

As with all insurance, the trick to buying the right type is to consider exactly what it is that you need it to do for you. You need to have a very close look at the small print of any policy to make sure it will pay out when you want it to.

There are general long-term income repayment policies designed to kick in between when your employer stops paying sick pay, and when you collect your pension.

The deferred period

The period between when you become unable to work and when you want the insurance policy to start paying out is known as the deferred period, the longer the deferred period the lower your premium, however you will still need to meet your financial comments during this period. The policy is a normally protection policy and will have no cash in or investment value.

Why do I need Income Protection?

The likelihood of being unable to work due to an illness or accidental injury is greater than you may think:

In August 2010 in the UK, 2.6 million people were claiming incapacity benefits. 1.7 million people have been claiming for over 3 years. Source of information is the Department for Work and Pensions.

I can rely on State benefits though… can't I?

Statutory Sick Pay of £81.60 is paid for the first 28 weeks of incapacity. Tax year 2011/2012.

What are the common causes of claiming?

Income Protection covers a wide range of conditions that can prevent you from working. Here are a few of the most common causes of a claim:

  • Mental illness (such as stress and depression)
  • Musculoskeletal problems (problems of the muscles and bones, including back pain)
  • Heart disease
  • Cancer