Six reasons to consider this insurance
A guide to Income Protection Insurance
You may have heard of Income Protection Insurance but not be sure what it actually does, or you could know what is, but have no clue about where to get the best deal. A few people have it without even realising it. Income Protection Insurance also known both other names such as as income payment protection, or just plain old income protection, is a policy taken out to guard against a loss of income if you become ill, are lose your job through no fault of your own, or because you are injured through an accident.
Income Protection Insurance is known by the three different named mentioned above. Do not confuse them all; they all refer to the same policy and are essentially the same thing. It can also come under the heading 'ASU' or accident sickness insurance. One subtle difference can be found between 'income payment protection insurance' and 'income protection insurance'. Income protection insurance can refer to a policy taken out to cover a number of years – perhaps up until a person retires – and attracts higher premiums. It also covers incapacity only.
A policy with anyone of these four headings should be aimed at making sure your circumstances do not dramatically change if the worst happens and you are jobless. Most of us have a variety of regular payments to make from the mortgage to the credit card bill, and we all know what can happen if suddenly we can't pay.
One reason you may never have even considered this sector is because of the existence of the welfare state. There are plenty of headlines about people harvesting apparently handsome livings on Government handouts. If the unexpected descended surely we'll be all right then? But the reality is allowances are unlikely to cover the typical outgoings of someone who has a mortgage, full time job, and all the typical debt commitments of a modern household.
Savings are an option, but they will disappear fast, and you may have family members or a partner that could step in, but few people will be able to help you through a long period out of action. For a premium each month, Income Protection Insurance will help to make this problem go away.
Income Protection Insurance – Quote and Apply
Whatever Income Protection Insurance policy you take out, it won't mean you can be out of work and live a handsome lifestyle, although it will be meat to keep creditors at bay. Most companies will only insure a proportion of your net income – probably up to 75 per cent of it, but with a limit of about £2,000 – whichever is smaller. You can choose a portion of that total to be paid to you tax free in monthly instalments for a length of time, probably around 12 months at the most, though some income protection insurance policies will run for up to 24 months. Not all, but some insurers will require a medical, and in some cases individual characteristics such as age and smoking habits could affect what you pay.
Before you decide on anything get your calculator out and work out the rough total expenditure of your monthly outgoings, including things like mortgage or rent, council tax, loan and credit card repayments, utility bills, food and petrol. Then deduct this from any savings you may have or any other income you might get from elsewhere. Also, your employer could carry on paying you an income for a period, but others will only give out statutory sick pay. Check what your arrangements at work are first.
The more research you do, the more confused you are likely to become as the industry tends to throw up more and more terms, and there are a number of different kinds of income protection insurance.
Income Protection Insurance – Apply Online
Often under the umbrella of income protection insurance, this aims to cover payments you normally make on a credit card bill. Cover offered by the credit card firms themselves tends to be more expensive than that offered by independent income protection insurance providers. It can often be called payment protection and is like mortgage payment protection, but is tailored specifically for card bills. A lot of these policies will only cover the minimum monthly payment and some allow you to choose the amount you cover.
Group income payment protection is used by companies who want to pay for income protection cover for its employees so they can get it at a good price. This type of deal is only usually offered at bigger firms.
Confusingly policies with this title are not really income protection policies but personal accident plans with a sector covering income replacement. As the name suggests, they are appropriate for someone whose income is reliant on playing a sport.
Sometimes called 'housewives' or 'mums' cover or even ‘carers' cover. Designed for people like this who have no income, the policy can activate if they are suddenly unable to perform regular activities like walking or lifting meaning they can no longer look after children. This pays a regular, fixed monthly amount.
The above terms are just a few out there flying around the income protection insurance market. A word of warning – besides this jargon, the sector, as part of the payment protection insurance industry, comes under an investigation by the Competition Commission, which is still running its course. This began after some operators were found to be mis-selling forms of payment protection insurance.
Some people have had policies tacked on to loans given to them by their provider without even really knowing it. If you are not sure, check with them. It does not matter if you have made up your mind to get it or are just looking – make sure you read small print. The Citizens' Advice Bureau offers advice on the matter which also includes checking all the exclusions attached to each policy you are offered. If you are not happy with something you have been sold already, complain. If you are not happy with the firm's response, take it further with independent bodies. However, there is no reason you can't pick up reasonably priced income protection insurance by shopping around and taking care.
