Having enough to pay for what you need now and in the future
When life throws unexpected challenges our way, such as severe illness or injury, the impact can be emotionally and financially overwhelming. While it’s never pleasant to contemplate misfortune, it’s crucial to consider how you would cope if a severe health issue left you unable to work.
Would your savings or workplace sick pay be sufficient to support you and your family? If not, it’s time to explore income protection insurance as a viable option for covering your expenses during such times of need.
Safety net for the unexpected
Income protection insurance is a long-term safety net, providing monthly payments if you cannot work due to illness or injury. 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 tailor the policy to your 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, offering flexibility based on your current financial situation.
Comprehensive cover for peace of mind
This insurance covers a wide range of illnesses and disabilities, both short and long-term, ensuring that you are protected regardless of your incapacity. As long as your policy is active, you can make multiple claims, guaranteeing continuous financial support throughout your recovery journey.
Workplace sickness benefits
While some employees enjoy generous workplace sickness benefits until their intended retirement date, others might need to rely on state support, which can be challenging.
Income protection insurance provides a tax-free monthly income up to retirement age if you cannot work due to long-term sickness or injury. This ensures that financial struggles prevent you from dipping into savings or incurring debt.
Tax-free income to alleviate financial strain
Income protection insurance aims to restore your financial situation to its pre-illness state without allowing for undue profit. The maximum cover amount is typically based on your after-tax earnings minus applicable state benefits. This structure helps maintain your standard of living even during challenging times.
Special considerations for 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, providing a critical lifeline when traditional employment benefits are unavailable.
Cost of cover
Premium costs depend on various factors, including gender, occupation, age, health status and smoking habits. Insurers use the ‘occupation class’ to determine policyholders’ ability to resume work. If a policy only offers payouts for those unable to work in ‘any occupation’, 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.
You can select between level cover or inflation-linked cover:
Level cover: Provides a fixed monthly income, determined at the beginning of your plan, with no future adjustments. However, rising inflation could reduce the purchasing power of your monthly income over time.
Inflation-linked cover: If a claim is made, the monthly income increases according to the Retail Prices Index (RPI), protecting against inflation.
When obtaining cover, you typically have two options:
Guaranteed premiums: These remain constant throughout your plan’s term. If you opt for inflation-linked cover, your premiums and coverage will automatically increase yearly based on RPI.
Reviewable premiums: These may fluctuate over time. Generally, premiums won’t change during the first five years of your plan but may afterwards. If your premiums increase or decrease, they’ll remain stable for 12 months.
Making a claim
The waiting period after making a claim depends on your policy. Opting for a longer waiting period results in lower premiums but also means you’ll wait longer after becoming unable to work before receiving policy payments.
Remember, premiums must be paid throughout the entire term of the plan, including during the waiting period. Your specific circumstances may affect how plan payments impact any state benefits you receive.
Peace of mind and financial stability
As the market evolves, innovative new products are regularly introduced. Professional financial advice is invaluable to determine how your state benefits might be affected. Income protection insurance offers a reliable and customisable solution for 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.
In conclusion, income protection insurance is not just a policy – it’s a proactive step towards securing financial stability in the face of life’s uncertainties. By understanding and investing in this type of insurance, you ensure that you and your loved ones are protected financially, allowing you to focus on recovery and maintaining your quality of life. This prudent planning provides peace of mind, knowing you have a safety net to rely on, regardless of the future.
