None of us want to think about getting sick or becoming disabled. However, knowing your bills would be covered if that were to happen does bring some peace of mind. After all, the last thing you want to worry about if you get diagnosed with a serious illness is how to pay your mortgage. Income protection.
Income protection insurance pays out if you’re unable to work due to sickness or disability. It covers a wide range of conditions and you’ll usually receive between 50% and 70% of your gross income, tax free. In most cases, your insurance will continue to pay out until you return to work, die or reach retirement age.
WHAT TO CONSIDER BEFORE GETTING A QUOTE
It’s worth having an idea of what you need the policy for. For example, if you’re the sole or main earner in your family, you may need protection to cover all the essential household expenses, from your rent or mortgage to food and clothing. If you share the financial burden with a partner, you may want a joint policy, or require less individual cover, which could mean lower monthly premiums.
You’ll also want to check how much your employer will pay you if you’re off sick. Some employers just offer statutory sick pay, but most will pay your full salary for a fixed amount of time. If this is the case, you may be able to reduce your monthly premium by extending the deferral period (the time between going off sick and being paid by the insurance company).
Or if your employer offers full pay for a fixed amount of time, dropping to half pay and then zero pay, you could take out ‘stepped benefit’ income protection, which means you would accept a lower amount from the insurer to begin with, which would then rise as your employer’s contributions fall.
DIFFERENT TYPES OF COVER
There are lots of different types of cover to suit different budgets and circumstances. For instance, cheaper policies may only pay out if you can’t work at all, while those offering better protection will cover you if you can’t do your current job. Some policies pay a fixed amount if you die, while others only pay out until your death. Some will waive the deferral period if you become ill for a second time within a 12-month period; others won’t.
If you’re a business owner, it’s usually more cost effective to take out insurance through your company, rather than getting a personal policy.
FINDING THE RIGHT COVER
An independent financial adviser can ensure that you’re getting the cover that suits your own personal circumstances. For example, if you still have many years left until retirement, you may want to take out ‘index linked’ income protection, which means that the amount paid out rises with inflation.
Dan Driscoll, AFWM’s Operations Director, shares, “A financial adviser will discuss the different levels of cover available and the pros and cons of different policies. For example, we’ll talk about the deferral period and benefit payment period, and any additional features. What’s more, as we have access to most of the market, we’re usually able to find a provider that will cover the ‘riskier’ occupations and hobbies that many insurers won’t touch.
AFWM don’t charge a fee for the initial consultation. In most cases are fees paid by the insurance provider in the form of commission, meaning the advice wouldn’t cost you anything extra. What’s more, using one provider for multiple insurances often means we can get you a discount.