Think IFA guide to ‘Income Protection’
What is Income Protection Insurance?
Income protection cover pays out a regular tax-free amount should you lose your job due to ill-health or an injury. Depending on the type of protection insurance, you can benefit from payments until either you are able to return to work, upon retirement or death for a fixed term which is known as short-term income protection.
Whilst you will not get 100% of what you earned whilst working, you could get a good percentage of around 50-70% tax-free.
According to an Unum/Guardian survey it showed that 11% of working people have had to take 6 months or more off work due to illness or injury during their working life.*
If you where to lose your job this month, could you continue financially until you are able to return to work?
* (source: Unum/Guardian survey)
Income Protection Policy Choices
As stated above you can choose from a long-term protection policy or a short-term one depending on your requirements and circumstances.
Long-term Protection Policies
Long-term income protection policies in the UK can give you regular payments until death, retirement or you are able to return to work. There are 3 main plans:
- Age-Related Policies – These may start off with low premiums but will rise by an agreed amount every year.
- Reviewable – This means that the policy premiums can be reviewed (usually every 5 years) so your payments could go up as well as down with around 30 days notice.
- Guaranteed – You agree on a fixed premium rate and this is what you pay annually unless you change your level of cover.
Short-term Protection Insurance
Also referred to as Accident, Sickness and Unemployment Insurance, this policy can protect your income should you be made unemployed, become sick or suffer an accident, whereas income protection will not cover you for unemployment.
An agreed monthly amount will be paid out for a set period of time, usually around 12 months.
This type of cover is ideal for self employed or casual workers who perhaps don’t have savings or employee benefits to fall back on.
Choosing the Best Income Protection Policy
There is more to income protection cover than comparing the cost. You have to take your occupation into consideration, your risk factor, your age and your budget to find the best cover for you.
By seeking independent advice you can compare income protection insurance quotes from the whole of the UK market to help find the most suitable policy for your circumstances.