Income Protection Insurance

What is an Income Insurance Insurance Policy ?

Income protection insurance gives you the ability to effectively buy your own sick pay.

It will provide a monthly tax free income if you are unable to work due to illness or injury. This can vary greatly from a broken arm to cancer and there is no pre-defined list of things you are or are not covered for. You will receive the benefit either until you are able to return to work, you reach retirement age or until the end of the policy term.

There are currently two types of income protection insurance available to you.

Short Term Income Protection Insurance

This type of income protection insurance is known as payment protection insurance and is used to protect your mortgage or rental payments. These types of protection typically will pay out for twelve to twenty four months as a maximum. The maximum benefit for this type of cover varies between providers but is typically 130% of your mortgage or rent payment.

In addition, this is the only form on income protection insurance that gives you the option to include redundancy cover.

Long Term Income Replacement Insurance

This type of income protection insurance is designed to replace your income in the event of you being unable to work due to illness or accident. The benefit can be taken for a long period and the terms can be up to retirement of a specific term.

Things to Know About Income Protection Insurance

The price you pay for your premiums is based on a number of factors, namely the state of your health, your occupation, your age, the salary you receive and the deferred period (this is the period of time that has to pass whilst you are unable to work before a claim can be made). Whether you are a smoker or not is also taken in to account.

As the policy is medically underwritten and income protection insurance has the strictest underwriting, it is important to be completely honest about these things and mention any time off work or operations you have had in the past.

Dependent on your job your policy could be set up as an own, suited or work tasks. For example if you are a builder your policy would be very different then if you are an office worker.

The insurer can never take the policy away from you or decrease your payout, even if you are never go back to work again.

Are There any Options on Income Protection Insurance I can Have?

The length of the policy is entirely up to you and is usually the term of your mortgage or to cover you until you reach retirement age. It is not however necessary for you to have a mortgage to be able to take out an income replacement insurance policy.

It is up to you to choose your deferred period. Typically these are 0 days, 1 week, 4 weeks, 8 weeks, 13 weeks, 26 weeks and 52 weeks. Basically, the longer deferred period, the lower the premiums are. It is therefore important to know exactly how much sick pay you are currently entitled to receive as that can save you money.

Income protection insurance policies can be tailor made to pay you a percentage of your gross salary, usually between 50 and 65%.The benefit you receive is non-taxable and goes straight into your bank account. You also have the option to increase the payout linked to the Retail Price Index (RPI) to protect you from inflation in the event of making a claim.

Income replacement insurance policies can also be taken out if you are self employed or if you receive no sick pay.

The premiums can be guaranteed or reviewable. If you select a policy with guaranteed premiums then your payments will remain consistent throughout the policy term. It is possible to make multiple claims throughout the term and the insurer will not increase the premiums if you do make multiple claims.

If you decide to opt for an income replacement insurance policy with reviewable premiums then your policy will typically have a review date of five years. When you reach this point, your insurer will look at their claims history and may increase your monthly premiums. You will however not be required to provide any further information regarding your medical history so if you have had any health problems that have occurred since your policy began, you will not be penalized and your premiums will not be affected.