What is income Protection?

When the unexpected strikes, our world can be turned upside down instantly. It's never pleasant to contemplate misfortune, but what if a serious illness leaves you unable to work? How would you cope financially? Would your savings or workplace sick pay be enough to keep you afloat?

If not, it may be time to explore other options for covering your expenses – like income protection insurance.

While we all hope that such circumstances never befall us, it's crucial to recognise that no one is exempt from the possibility of illness or accidents. We cannot guarantee that we won't fall victim to a sudden mishap or receive a life-changing diagnosis.

In these situations, mortgage and rent payments and bills don't stop, so choosing to forego income protection insurance could be risky.

Having a safety net in place, such as income protection insurance, can provide peace of mind knowing that you have a financial cushion to fall back on in times of need. This type of insurance typically replaces a portion of your income if you are unable to work due to illness or injury, ensuring that you can still meet your financial obligations.

Furthermore, income protection insurance can offer a sense of security for both you and your loved ones. Knowing that you have a plan in place to handle unexpected circumstances can alleviate stress and allow you to focus on your recovery without the added worry of financial strain.

While it's easy to dismiss the need for income protection insurance when things are going well, it's important to consider the potential consequences of being unprepared for the worst. By taking proactive steps to protect your income, you are investing in your future well-being and safeguarding against the uncertainties that life may bring.

Income protection insurance is a long term safety net, offering monthly payments

if illness or injury prevent you from working.

This coverage typically continues until you can return to work, retire, pass away or reach the end of the policy term – whichever comes first.

To align with your unique financial needs, you can choose when payments begin – typically after sick pay ends or other insurance coverage ceases. Opting for a more extended waiting period can result in lower monthly premiums.

COMPREHENSIVE COVERAGE

This type of insurance covers a wide range of illnesses and disabilities, both short and long-term, ensuring you're protected regardless of the nature of your incapacity.

As long as your policy is active, you can make multiple claims, ensuring continuous financial support throughout your recovery journey.

WORKPLACE SICKNESS BENEFITS

Some employees enjoy generous workplace sickness benefits until their intended retirement date. However, others might need to rely on state support, which could prove challenging.

SELF-EMPLOYED INDIVIDUALS

For self-employed individuals, no work often means no income. Income protection insurance can be customised to account for fluctuating income, with some policies averaging earnings over the past three years. This ensures that self-employed individuals receive appropriate support during their recovery.

TAX-FREE INCOME

Losing your regular income, even temporarily, can lead to financial struggles and dipping into savings. Income protection insurance provides a tax-free monthly income up to retirement age if you cannot work due to long-term sickness or injury.

Income protection insurance aims to restore your financial situation to its pre-illness

state without allowing for undue profit. The maximum coverage amount is

typically based on your after-tax earnings minus applicable state benefits.

You can select between level cover or inflation-linked cover:

Level cover:

This option provides a fixed monthly income, determined at the beginning of your plan, without future adjustments. It's essential to note that rising inflation could reduce the purchasing power of your monthly income payments over time.

Inflation-linked cover:

With this choice, the monthly income increases according to the Retail Prices Index

(RPI) if a claim is made.

COST OF COVER

Premiums for cover are based on various factors, including gender, occupation, age, health status and smoking habits. Insurers employ the 'occupation class' to determine policyholders’ ability to resume work.

If a policy only offers payouts for those unable to work in 'any occupation’, the benefits might be short-lived or non-existent.

More comprehensive options include 'Own Occupation' or 'Suited Occupation’.

The latter allows claims if you can't perform your specific job, while the former requires being unable to perform any job without considering equivalent earnings from your previous position.

Income protection insurance offers a reliable and customisable solution to maintaining financial wellbeing during recovery from illness or injury. Whether employed or self-employed, this insurance provides peace of mind and financial stability when needed.