12 Jul Income Protection: Why you need it
Do you know what you’d do if you found yourself unable to work? If you find yourself unable to work due to illness or injury then Income Protection is designed to offer you cover.
What is Income Protection?
So, what is income protection? In simple terms, income protection is an insurance policy. If you become unable to work due to injury or illness, you will be covered. Income protection insurance pays you a regular income if you can’t work because of sickness or disability. The income you get from the policy is tax-free. Depending on the type of income protection you take out, you can be covered all the way up to retirement. However, in most cases, you’ll be covered until you are fit to return to work.
Why do you need Income protection?
Not all employees will support their staff for more than a year if they fall ill and are off work. Given the low level of state benefits, everyone of working age should consider Income Protection. You’re most likely to need it if you’re self-employed or employed and you don’t have sick pay to fall back on. If illness would mean you couldn’t pay the bills, you should consider income protection insurance.
How does it work?
Income Protection policies will pay out a certain amount of money after a set period of time.
You can have control over the waiting period, normally between a month to a year. The longer you defer, the cheaper the policy will be. It will then pay out until you retire or return to work, assuming that you can prove your illness for this length of time. A policy will have a fixed term and is permanent, so does not have to be renewed. It also means you will receive it until:
- The consumer is no longer sick.
- The consumer retires.
- The consumer dies.
Cost
So how much does it cost? This will be affected by policy and circumstances. Some factors may be:
- Age
- Job
- Health
- Percentage of income
It can take a little while to pay out and this is normally linked to your premiums, so the less you pay the longer it may take to pay out.
How much does it pay out?
New figures released by the Association of British Insurers (ABI) and Group Risk Development (GRiD) show that the insurance industry paid out more than £5.3 billion in protection claims in 2018 – a £200 million increase year-on-year. (source)
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Income protection payouts are usually based on a percentage of your earnings: 50% to 70% is the norm. Sometimes, an insurer might pay out a higher percentage of one portion of your salary (perhaps the first £50,000), and a lower percentage on anything above that.
Figures for the whole protection market (individual and group):
* Includes figures from the Association of Financial Mutuals
**This is the total number of claims in payment at the end of the year
***This is the average annual value of claims in payment at the end of the year
(source)
How can we help?
Our advisers are able to guide you through the different types of protection and once your exact requirements have been established, provide you with advice. You can also mix and match protection cover to suit your needs for today and for tomorrow. For protection insurance we offer products based on an analysis of a number of insurers.
At Nepcote Financial we pride ourselves in providing the very best mortgage advice. We are a small family run business where a friendly & efficient service is the priority for every client.
There may be a fee for mortgage advice. The precise amount depends on your circumstances but a typical fee on a residential/ non residential mortgage would be £475.
*Your property may be repossessed if you do not keep up repayments on your mortgage.
