Income Protection Insurance
Whereas critical illness insurance provides a lump sum payout if you have to give up work due to ill-health, income protection insurance gives a monthly payment, similar to a ‘replacement salary’.
The first thing to remember is that income protection insurance does not cover you against redundancy, it covers health issues only.
(Protection against redundancy is covered by ASU Insurance. Find out more about ASU here)
Income protection insurance is something that should be considered quite seriously if you are self-employed, as you may find yourself devoid of an income if you are struck down by ill-health.
Find out more about insurance for the self-employed now, or call 0800 678 5929
How does income protection insurance work?
Income protection does not pay out immediately when you become unable to work. There is a period, known as the ‘deferred period’, before which the payments begin, and during which you continue to finance yourself. The deferred period can range from 4 weeks to 2 years, and the longer the deferred period, the cheaper the premiums you pay.
You also decide how long your payments will run for, once the policy does pay out. You may decide to keep your costs down by paying for a policy that will pay out for a fixed term, for instance to cover you and your family until your children are grown. Or you may prefer cover that would pay you an income right up to your retirement and pension. In this case, the insurance is sometimes also called ‘permanent health insurance’.
Income protection insurance would typically provide you with 50% of your working salary, and is paid tax-free. This is not affected by other, additional benefits you may receive, such as incapacity benefit or Disability Living Allowance (DLA).
Unlike some other forms of insurance, an income protection policy does not expire when you claim. You can claim repeatedly during the lifetime of your income protection policy. For example, you might make a claim for a condition which later clears up, and you return to work after six months. Perhaps you might then fall ill again, a year later. Under these circumstances, you can make a second claim.
If you are claiming income protection because you are off work in the long term, your insurance provider will request regular updates on your condition, to confirm your state of health.
Understanding your income protection insurance
In all contractual arrangements, the old adage is true: ‘the large print giveth, the small print taketh away’. With insurance this is certainly the case, and you are well advised to have your financial adviser explain the conditions of your policy.
Find out more about terms and conditions of income protection insurance now or call 0800 678 5929
It is crucial to be open, honest and accurate about your health and lifestyle, when filling in your application form. Your insurance company will certainly request your file from your GP when you claim (and sometimes even when you apply), and in the event that you have been less than frank with them – or even if you did not check something and answered wrongly – they could justify refusing to pay out. This is called ‘non-disclosure’ and can often be quite innocent and inadvertent, on the part of the applicant. For example, it could happen when you answer questions about the health of your parents, but are unaware that one of your parents might have had a minor heart condition, in the past.
What constitutes being ‘unable to work’?
Another important aspect of the ‘small print’ is that income protection insurances operate based on various definitions of being ‘unable to work’. It is crucial to know which applies to you.
Some policies will not pay out unless you are unable to do any job at all. This means that if a solicitor were confined to a wheelchair and lost the use of her hands, so that she could no longer work at her profession, the insurance company could refuse her claim by saying that she could still work as a receptionist, even though her salary would be less.
In some cases you can, however, insure yourself against being unable to do your own specific job.
It is therefore important to consider if you would be prepared to do other types of work, before you choose your income protection insurance policy.
Ask us now about the variations within income protection insurance or call 0800 678 5929 now
The cost of premiums for income protection insurance is also a factor to consider. Guaranteed premiums will remain constant through the years, so that the monthly cost of your insurance does not change. Some policies, however, begin with an attractive low rate, but raise this as you age.
There will also be certain situations which are excluded from cover. These might include normal pregnancy, drug or alcohol abuse, AIDS, criminal acts, and self-inflicted injury.
Ask us about premiums for income protection insurance or call us now on 0800 678 5929
