Income protection cover also known as income protection insurance is a form of long term incapacity cover. Such protection policies pay out a tax-free monthly income directly to you if you are unable to work due to sickness or injury.
Income protection cover can provide a monthly payment if you are rendered unable to work due to illness or injury, this payment will continue from 2 to 5 years or even providing financial protection until retirement age, if so desired. The amount of cover available with an income protection policy is usually set between 50% and 65% of your taxable income. There are also specific self employed income protection products available.
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Provides you with a monthly cash sum if you are unable to work due to illness or injury. |
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With income protection cover it is up to you how the monthly payout is allocated. |
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An income protection plan can be expensive if taken out with with a short deferred period. |
When will the policy payout?
An income protection policy will payout due to incapacity and thus an inability to work caused by illness or injury and has three main definitions of incapacity:
- Own occupation. You are unable to perform the of duties required for your own occupation;
- Suited occupation. You are unable to perform the duties of your own occupation or the duties required for an occupation you are suited for by means of training or experience;
- Any occupation. You are unable to perform the duties required for any occupation. To satisfy this much stricter definition of incapacity you would need to be unable to perform a select number of everyday tasks such as walking, lifting, reading or hearing.
It is important to understand the differences between the definitions when choosing your cover, take ‘own occupation’, it means that it will payout if you are unable to work in your own occupation due to sickness or injury.
If you become incapacitated your cover will start to payout after a deferred period which you choose at the start of the insurance policy. It is common to align the deferred period on your plan with the length of time your employer will provide adequate sick pay.
Please note that income protection cover is a policy designed to protect you from long term sickness or injury. If you are looking to protect a loan or mortgage from short term accident, sickness or unemployment you should consider accident, sickness and unemployment cover or mortgage protection insurance.
How much will the income protection plan payout?
The amount of the benefit received when claiming will depend on the amount of cover you choose when applying for the insurance policy, you are usually able to choose to cover up to 65% of your gross earnings, however, a limited number of insurers will cover up to 75% of pre-tax (gross) earnings. Any state benefits payable or benefits in receipt from other policies may reduce the payout on your plan.
Do I need income protection cover?
What would be the financial impact on you and your family if you were to become seriously ill and unable to work? Would your partner have enough earnings and savings to pay the bills and make mortgage loan payments? If not, then an income protection policy could be a solid way to protect their future.
Factors to consider when getting an quote?
- What tax-free monthly income would you and your family require should you be off work due to serious illness or injury?
- How quickly would you require plan to start paying a monthly benefit following a serious illness or injury which renders you unable to work?
- For how long would you need the income protection cover to last, until planned retirement age?
- Would you like the insurance policy premiums to be fixed over the term of the plan?
- Do you want your policy to cover you if you were unable to perform the duties of your ‘own occupation’ due to sickness or injury?
If you need some guidance buying income protection cover or simply want an income protection insurance quote please do not hesitate to get in touch, as insurance brokers dealing with insurance day in, day out, we are in a great position to help.
Impartial insurance information can be found at the British Insurance Brokers Association website and the regulation of the market can be found on the Financial Services Authority’s website.
