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Protecting your income with Income Protection Insurance Cover
All of us moan about not having enough money to pay for things and that our wages do not stretch far enough. However, have you considered how you would manage to survive financially if you lost your income to unexpected redundancy? Or how you would still be able to pay your bills if you because unable to work due to recovering from an accident or because you were suffering from a prolonged illness? Even with a regular wage, many of us struggle to pay for everything. To lose this income could see you in a state of severe financial distress. The good news is that there is a way that can you protect yourself financially in the event that you lose your income through no fault of your own – income protection insurance.
Insurance cover to protect your income
Income protection insurance can be known by many different names including: income payment protection; income insurance; ASU (accident, sickness and unemployment) insurance; redundancy or unemployment cover; and the generic, payment protection insurance (or PPI for short).
However, while these names all differ, essentially they all have the same aim – to provide you with a replacement income should you be unable to work or become unemployed.
An income protection insurance policy will provide a monthly sum that is tax free, which you can use to meet your outgoings and other financial commitments, giving you some breathing space while you recover or look for alternative employment.
What you spend the money on is up to you. It could be for rent payments; utilities; fuel; or even for a new suit for that all important job interview! The most important thing is that you still have an income to meet your day to day living costs at a difficult time.
How does income protection insurance cover work?
If you become unable to work due to suffering from an extended illness or injury, or you become involuntarily redundant, then the policy will start to provide you with a monthly benefit.
The amount of benefit you will receive every month will be set at the time of taking out the income cover, but in most cases it will be up to a percentage of your existing income (typically 50% of your gross monthly income) or the provider’s own set limit, whichever is the lower
While policy features and benefits vary among providers, typically these benefits will start to pay out around 30 days after you become incapacitated or unemployed. However, with some policies there can be up to a 90 day waiting period before you can make your claim, so it is important that you check the small print.
You will continue to receive these benefits for up to 12-24 months (again, depending on the policy terms and conditions) or when you get back to work, whichever event is sooner.
Look out for income protection insurance policies where the insurer will back date your claim to the first day that you became unable to work, so that you do not lose out financially.
Income payment protection cover can provide real financial relief when you would otherwise be struggling financially and you have three options to choose from.
Different levels of income protection insurance cover available.
So that you can get cover that best suits your circumstances, there are three different types of cover available. These are unemployment only cover; incapacity (accident and sickness) cover only; or accident, sickness and unemployment income cover together.
The latter offers the most comprehensive protection, covering you against the main three things that could lose you your income.
However, you may wish to take out income protection against unemployment only if your employer offers a generous sick pay scheme. Or, you may feel that you only need incapacity cover as, should you lose your job, you will live off your redundancy pay.
Check with your employer to see what sort of sick pay scheme they offer and also check out any statutory redundancy pay to give you a feel for what sort of income protection you may need.
Why is income protection insurance cover so important?
You may think that you do not need income insurance and that you’d manage somehow if you lost your job or became unable to work. However, the only certain thing in life is death and taxes and redundancy or illness could strike any one of us at any time.
You may think that the State would help you out in your time of need. However, relying on State assistance is not the solution. Not only would you have wait several weeks before you could make a claim, but you would have to meet strict criteria in order to be eligible. Even then, the amount you would receive would not match your wage by any means and would still see you struggling.
Income protection insurance can take away all the worry as to what would happen if you were without an income and can prove invaluable for keeping you financially stable.
The cost of income protection insurance cover.
You may think that buying an income insurance policy would be too cost prohibitive. However, there are many low cost solutions available if you shop around for the cover. Historically, High Street policies and those from Banks tend to be expensive, but by going with an independent provider, you can often find a good deal from just a few pounds a month for every £100 worth of income insurance needed.
These standalone policies often offer additional policy features – such as the back to day one cover we mentioned before – for no extra cost, so it is worth doing a little research and seeing what is available independently. There is absolutely no reason why you should pay more for the insurance than you need to!
Income protection insurance cover.
The importance of having income protection insurance
should not be underestimated. In a nutshell, income protection insurance can help you continue to meet your outgoings even when faced with redundancy or the inability to work due to illness. It does not need to cost a lot and is a low cost way to having financial peace of mind.
A guide to income, loan and mortgage payment protection insurance