In these crazy uncertain times, there has been a surge of interest in insurance products such as income protection. We’ve realised that we are not invincible, and anything can happen to compromise our earnings. It’s worth having some cover in place to safeguard us in difficult times – particularly if you have a family who relies on your income.
Income protection requires a little monthly investment, so you might be wondering how it works and what it covers. Here’s a run down of all the basics…
What is income protection?
Income protection is a really important insurance product for anyone earning a regular income. It pays out if you become too ill or injured to go to work, providing a regular portion of your salary to keep things afloat – usually around 50-70%.
You don’t receive your regular payouts as soon as you claim on an income protection policy. You must first wait for your deferral period to pass. You decide how long this deferral period will be when you take out your policy. It can be as long as 12 months, or as short as four weeks. The longer the deferral period, the lower the monthly premiums. Once up and running, your policy will support you financially until you either return to work, reach retirement or pass away during the claim period – whichever comes first.
As for the cost of income protection insurance, it will all depend on the amount of cover you choose to take out and your personal circumstances. That includes your lifestyle, your age, your job, hobbies, current health and medical history. In the same way as car insurance, premium prices are pretty much based on your level of risk. That’s why it actually makes a lot of sense to take out an income protection policy whilst you’re young and healthy, as your premiums will be lower.
What does income protection cover?
Income protection is considered quite broad, in that it will cover you for most illnesses that leave you unable to work. This could be a stress-related illness or mental health issue, or a serious heart condition or a stroke. There will be exclusions on your policy, such as pre-existing health conditions, but generally speaking anything that leaves you unable to work will be covered. Most commonly, people claim for muscular problems and back pain.
To receive income protection payouts, you must be a permanent UK resident, up to date in paying your premiums and most providers will expect you to have been registered with a GP for at least two years.
As mentioned, you won’t be covered for any pre-existing medical conditions – so anything you knew about before you took your policy out. Pregnancy is also excluded, however pregnancy related complications might be covered. If anything is self-inflicted, you will also be very unlikely to receive a payout. This could be alcohol or drug misuse, criminal acts, cosmetic surgery or war-related issues.
What about if I get made redundant?
A worry amongst many people at the moment is redundancy. It’s become all too common since businesses began to struggle under the weight of the COVID-19 pandemic. Unfortunately, this made any insurance providers stop offering things such as unemployment insurance.
Income protection has remained largely unaffected, as it does not and never has paid out for redundancy. You can only claim on an income protection policy if you cannot work due to illness or injury. Losing your income for any other reason won’t be covered.
There is one slight ‘loophole’, in that you may have made a claim on your income protection policy as you are out of work due to injury or illness. During this time, you may get made redundant by your employer. In this case, your policy might continue to pay out, but this will differ between policies so make sure that you check your fine print.
If you have a family who rely on you and you have an income, you should seriously consider income protection insurance. It does not break the bank, and you’ll never ever regret the investment should you ever need to make a claim. Don’t procrastinate any longer and speak to a broker today and get you and your family covered!