Income protection insurance may never have been as important as right now. How would you pay the bills if you were sick or injured and couldn’t work? There is a growing unease about the economic fallout of coronavirus (COVID-19), with many businesses laying off contractors and putting staff on extended leave, as well as natural worries about contacting the disease.<\/p>\n
What this crisis has shown is that being unable to work can quickly turn our world upside down. No one likes to think that something bad will happen to them, but if you can’t work due to a serious illness, how would you manage financially? Could you survive on savings or sick pay from work? If not, you may need some other way to keep paying the bills – and income protection insurance is an option to consider.<\/p>\n
You might think this may not happen to you, and of course we hope it doesn’t, but it’s important to recognise that no one is immune to the risk of illness and accidents. No one can guarantee that they will not be the victim of an unfortunate accident or be diagnosed with a serious illness. This won’t stop the bills arriving or the mortgage payments from being deducted from your bank account, so forgoing income protection insurance could be tempting fate.<\/p>\n
Cover monthly payments<\/strong><\/p>\n Income protection insurance is a long-term insurance policy that provides a monthly payment if you can’t work because you’re ill or injured, and typically pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner.<\/p>\n Keep your finances healthy as you recover from illness or injury:<\/strong><\/p>\n Generous sickness benefits<\/strong><\/p>\n Some people receive generous sickness benefits through their workplace, and these can extend right up until the date upon which they had intended to retire. However, some employees with long-term health problems could find themselves having to rely on the state, which is likely to prove hard.<\/p>\n Tax-free monthly income<\/strong><\/p>\n Without a regular income, we’re already seeing, as a consequence of COVID-19, how many people are finding it a struggle financially. Even if you were ill for only a short period, you could end up using your savings to pay the bills, but how long would they last for? In the event that you suffered from a serious illness, a medical condition or accident, you could even find that you are never able to return to work. Few of us could cope financially if we were off work more than six months. Income protection insurance provides a tax-free monthly income for as long as required, up to your nominated retirement age, should you be unable to work due to long-term sickness or injury.<\/p>\n Profiting from\u00a0<\/strong>misfortune<\/b><\/p>\n Income protection insurance aims to put you back to the position you were in before you were unable to work. It does not allow you to make a profit out of your misfortune. So the maximum amount of income you can replace through insurance is broadly the after-tax earnings you have lost, less an adjustment for state benefits you can claim. This is typically translated into a percentage of your salary before tax, but the actual amount will depend on the company that provides your cover.<\/p>\n Self-employment<\/strong><\/p>\n If you are self-employed, then no work is also likely to mean no income. However, depending on what you do, you may have income coming in from earlier work, even if you are ill for several months. Self-employed people can take out individual policies rather than business ones, but you need to ascertain on what basis the insurer will pay out. A typical basis for payment is your pre-tax share of the gross profit, after deduction of trading expenses, in the 12 months immediately prior to the date of your incapacity. Some policies operate an average over the last three years, as they understand that self-employed people often have fluctuating income.<\/p>\n Cost of cover<\/strong><\/p>\n The cost of your cover will depend on your occupation, age, state of health and whether or not you smoke. The ‘occupation class’ is used by insurers to decide whether a policyholder is able to return to work. If a policy will pay out only if a policyholder is unable to work in ‘any occupation’, it might not pay benefits for long – or indeed at all. The most comprehensive definitions are ‘Own Occupation’ or ‘Suited Occupation’. ‘Own Occupation’ means you can make a claim if you are unable to perform your own job. However, being covered under ‘Any Occupation’ means that you have to be unable to perform any job, with equivalent earnings to the job you were doing before not taken into account.<\/p>\n You can usually choose for your cover to remain the same (level cover) or increase in line with inflation (inflation-linked cover):<\/b><\/p>\n When you take out cover, you usually have the choice of:<\/strong><\/p>\n\n
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