Income protection will provide a monthly income if you can’t work in the case of an unexpected event such as injury or illness.
What does income protection insurance pay out for?
Income protection insurance typically covers most illnesses and injuries that prevent you from working, whether temporarily or long-term but it won’t provide a payout if you’re made redundant or if you have a pre-existing condition.
Income protection covers a wide range of illnesses or injuries, from broken bones to cancer. The most common claims are for cancer, mental health related and musculoskeletal – typically these make up nearly 70% of all claims.
What is the percentage payout from income protection?
Income protection insurance will pay up to 60/70% of your gross salary until you are ready to return to work. These payments continue until you’re well enough to return to work, your policy term ends, or you reach retirement – whichever comes first. Also, payouts are free from income tax, making it a valuable financial safety net during recovery.
What is the cost of income protection?
The cost is all dependent on individual circumstances and is based on the following aspects:
- Age – Generally, the younger you are, the lower your premiums are.
- Health – Existing conditions or lifestyle factors such as smoking may impact your premiums.
- Your occupation – Some jobs carry higher risks than others, which may affect your premium.
- The level of income you want to cover – If you want to cover a higher percentage of your income, this usually increases the cost.
- The policy term – How long you want the policy to last? (e.g. until retirement).
- The deferred period – The time between when you stop working and when payments begin.
Types of income protection policies
Income protection tends to be grouped into two categories – short term and long term. Short term is usually for the duration of 1-2 years, whereas long term will be carried out until the policy agreement ends or you reach the age of retirement.
Additional Extras
Most income protection policies can also include the following:
- 24/7 access to virtual GP appointments
- Lump sum payments if you break/fracture a bone
- Rehab support services if you’ve had an accident and need help getting back to full fitness and return to work
- Hospitalisation payments for each night you spend in hospital
What’s typically not covered?
- Pre-existing medical conditions
- Drug or alcohol misuse
- Self-inflicted injuries
Self-employed – why it is more crucial
If you are self-employed, you will not receive statutory sick pay (SSP), as employed people do. This means that you will have to rely on savings, family members or protection such as income insurance. This makes income protection especially crucial for the self-employed. It can help you continue paying for essential living costs and avoid financial stress.
Do you need income protection insurance?
This is all down to your personal circumstances but some key questions to ask are:
- How long would your employer continue to pay you if you were off sick? SSP usually covers you for up to 28 weeks so if you know your recovery time, income pro protection may not be necessary.
- Do you have sufficient savings? If you already have enough saved in tax free sources such as an ISA, it may not be worth carrying out income protection.
- Could your SSP cover your household income? If the sick pay available to you could cover any of your outgoings over a set period of time, then income protection may not be necessary.
How can PM+M help?
When it comes to something as important as protecting your income, understanding your options is key.
It’s vital you know whether it’s the right type of cover for you and your individual circumstances. That’s where our expert protection and mortgage director, Mark Chadwick, comes in.
Mark can guide you through the process, search the whole market, and recommend the most suitable policy with the right level of cover and premiums for your needs.
Contact Mark using the button below.
PM&M Mortgages Ltd is an Appointed Representative of The Right Mortgage Ltd, which is authorised and regulated by the Financial Conduct Authority.
