Income protection insurance. If you’ve just purchased your first home or applied for your first mortgage, this is probably a term you’re hearing a lot of. Whether you’re a first time buyer or a seasoned property investor, income protection insurance is highly recommended for you.
In this blog, our team of highly qualified mortgage and insurance advisors will highlight exactly what income protection insurance is and why investing in the cover could be highly beneficial for you, covering topics such as:
- What is income protection insurance?
- What does income protection cover?
- What injuries & illnesses are covered by income protection insurance?
- Income protection insurance vs statutory sick pay
- Benefits of income protection insurance
What Is Income Protection Insurance?
Income protection insurance, otherwise known as IP, is an insurance policy tailored to your specific fiscal needs and helps to support you financially should you ever find yourself unable to work due to illness or injury. At The Levels Financial, our team of advisors will always work with you to help find the policy that would best suit you and your needs.
How Does Income Protection Insurance Work?
If you find yourself unable to work due to illness or injury, your IP provider will replace part of your income with regular payments, typically between 50-60% of your income until you’re policy ends, you can work again, you retire or you pass away, this could last for months or years depending on your policy and injury or illness. Income protection insurance isn’t the same as critical illness cover which will be sent to you in one lump sum.This will all be subject to your ‘deferred period’, which is the waiting time from being signed off work (usually from a letter from your GP) until the time you are in receipt of the policy being paid out. The length of deferred period can vary from 0 weeks – 2 years which usually depends on the potential employer benefits offered, or how long the client feels they can support their outgoings without a form of income. Prices may vary but traditionally the longer the deferred period, the cheaper the provider can offer the cost of the cover for.
What Does Income Protection Cover?
Like most insurance policies the amount of coverage you get is dependent on your insurance provider, your coverage and your monthly base rate. However, income protection insurance is designed to cover most short or long-term injuries and illnesses which could stop you from working.
Income protection will usually cover the following:
- Replacing part of your monthly or annual income if you are unable to work or suffer loss of income due to illness or injury. Please note that policies won’t normally pay if you’re made redundant
- Income protection payouts will continue to cover you until you’ve recovered, retired, your policy ends and you pass away, whichever is sooner
- Whilst your policy is active you can claim as many times as you need to
What Injuries & Illnesses Are Covered By Income Protection Insurance?
Depending on the type of cover you opt for will depend on what illnesses and injuries your policy will cover. However, at The Levels Financial, we understand that life is full of surprises and you can’t predict what will happen.
Becoming unwell or suffering from an injury can be an incredibly stressful time and the last thing that you want is to be worried about keeping up payments for bills and monthly outgoings. This is where your income protection policy comes into play.
Income protection insurance can cover a wide range of illnesses and injury, including:
- Cancer (although this is different to cancer insurance)
- Heart disease
- Mental illness (including stress and depression)
- Musculoskeletal problems relating to bones and muscles
Income Protection Insurance Vs Statutory Sick Pay
In the UK, if you’re employed and unwell, you’re automatically entitled to statutory sick pay (SSP) of up to £109.40 a week for up to 28 weeks from your employer. This is different from income protection payments, which are organised and sourced by the benefactor, who will often pay a monthly premium.
However, there are a few additional differences between SSP and income protection payments, including:
| Statutory Sick Pay | Income Protection Insurance |
|---|---|
| Only applicable if you’re employed and have been off sick for four days or more. | Income protection payments are not taxable. |
| SSP cannot be paid if the employee works for one minute or more before going home or logging off as sick. | In most cases, depending on your coverage and deferment period, income protection can be claimed for any missed income due to injury or illness. |
| SSP is not available if the employee has received SSP within the last eight weeks | You can claim income protection payments as often as you need them until you’re able to work again, your policy ends, you retire or you pass away. |
| SSP covers sick pay at no additional cost to the employee. | Income protection payments are available only to those who pay a monthly sum to their provider. |
| If the interest rate is low, it’s an easy way to capitalise on the lower rate, saving money on your monthly payment. | If the interest rate is high, you will be ‘locked’ in with the higher interest rate for the extent of your agreement. |
| As SSP is paid directly to the employee by the employer, it is normally included in the monthly salary, without any delays. | It can take anywhere from four weeks to two years to claim income protection payments. Depending on your deferment period or work benefits you receive. For more information, speak to one of our advisors. |
Benefits Of Income Protection Insurance
If you become unwell or injured whilst in full or part-time employment, the last thing you want to be worrying about is your income, paying the bills or your mortgage. Instead, you want to be focusing on getting better and getting back to normality.
This is where income protection comes into play, if you find yourself unable to work for any length of time, be that a month or a few years, your income protection policy will be able to help replace any income. Other benefits of opting in for income protection insurance include:
- Financial security – if you do find yourself unable to work due to injury or illness, you will find peace in the knowledge that your income won’t stop and you should still be able to pay your bills and mortgage with the income protection payments. However, this is due to your policy and other factors, for more information, speak to one of our advisors.
- You’ll be better off compared to SSP – if your income protection claim is approved, you will be taking home more than you would receive on SSP.
- Freedom to start whenever – if you’re entitled to three months of SSP, you can organise for your income protection payments to begin after the three months of SSP. Income protection payments can be designed around you for you.
Book Your Free Income Protection Insurance Consultation Today
Interested in protecting your financial future against illness or injury with income protection insurance? Get in touch with our knowledgeable and friendly team today, where our advisors will work with you to find the right cover to best suit your needs.
For more information, or to book your initial free consultation, contact us at admin@thelevelsfinancial.co.uk or call us on 01458 772 040.
Please Note:
- If you stop paying premiums your coverage could cease
- If your income increases and you do not review your level of benefit, you may not receive sufficient payments when you come to claim
- If your income decreases and you do not review your policy, you may not be able to claim the full amount of benefit you originally applied for at the start of the plan
- If you cancel your plan you will not receive any money back
- Benefits received from income protection plans may affect your entitlement to any other benefit
- You must provide accurate and honest information about your health and lifestyle, if found otherwise you may not receive payments if you claim
- We offer products from a choice of insurers
