What is Income Protection?
Income protection insurance provides a replacement income should you be unable to work if you are sick or if you have had an accident.
Depending on the cover some policies will pay the monthly benefit until you return to work or retirement age. Other policies may impose a limit each claim to a set duration and this could be 12 months, 24 months, 36 months or 60 months in order to make the cover more affordable.
Some policies may also have the option to include unemployment cover so you can protect your earnings from being made involuntary unemployed for up to 12 months.
How much Income Protection?
The amount of cover you elect to have is likely to be different but is normally limited by your earnings. Typically income protection policies allow you to cover up 50 percent of your gross income rising to 70 percent for the highest providers. For the Self-employed the figure is based on net profits and directors the figure is calculated on PAYE earnings plus dividends and possible dividends paid to a spouse.
It is important that the monthly benefit amount does not exceed the amounted permitted under the particular policy. In particular other income protection cover and continuing payment from your employer should be considered in this calculation. You may therefore want to consider any benefits you have as an employee to ensure cover does not start to early during a claim to overlap any pay continuing from your employer.
If you are on a low income it is possible for cover up to 1,000 per month benefit without any reference to your earnings. So self-employed or employed could potentially cover more than they earn.
So to recap consider.
- Your earned income?
- Other policies covering the same?
- Employer benefits if you are sick?
- What living expenses and debts would you need to cover?
Are all Income Protection Insurance Policies the Same?
In essence the answer is No. The terms offered can vary widely in how a claim is assessed and typical standard exclusions that may apply. For example to claim successfully some policies may assess your claim as your ability to do the current job you do and not reassess you or change the way your assessed of longer term claims. Other plans may reassess you after a set time to see if you are able to do another job, or worst still they may for the start of claim assess your ability to do any job or a series of tasks making it more difficult for you to successfully claim.
When will it pay Out?
The waiting period you choose will determine the period of time you will need to be off work before a claim is payable. For the self-employed or those employees that have no replacement income if sick they could have a policy pay a replacement income from day 3 with the claim back dated to the first day of their illness or accident.
Typically most want a claim duration longer 1 week, 2 weeks, 4 weeks, 8 weeks, 13 weeks, 26 weeks or 52 weeks waiting period as this keeps the cost lower making premiums more affordable.
How to Buy?
Most comparison websites offer quotes however in the UK there is not a single quote system that will compare all available quote options. You will therefore need to either speak to an adviser or you can compare quotes online using the various quote tools.
Source by John A Garcia
