Have you planned for the eventuality that you are unable to work due to an injury or long-term illness? What position would you and your family be left in if this resulted in loss of earnings? Income protection covers your income so that you can recover without damage to your finances.
No one wants to think too deeply about the eventuality that bad health will affect them. But it is important to protect you and your loved ones if the worst happens. If you are unable to work and therefore unable to earn, your world can turn upside down quickly. Without income, could you cover your bills, childcare costs, school costs, living costs for months or perhaps even years? For most, the answer is no.
Unfortunately, no one is immune to the risk of serious injury or illness. You cannot guarantee that you or your partner will not be the victim of an unfortunate event. We all know someone who was completely healthy and fell victim, right? Do you think they saw it coming? Probably not.
If you become ill, mortgage payments will continue to be deducted, and your bills and living expenses will not stop, so it could be tempting to have no income protection.
What is Income Protection?
Income protection is a long-term insurance policy that provides a monthly payment if you cannot work because you are ill or injured. Typically, it will pay out until you can start working again, or until you retire, die or the end of the policy term, whichever is sooner.
Income protection keeps your finances in order while recovering from illness or injury:
- It replaces a portion of your income.
- It pays until you can start working again (or until you retire, die or the policy term ends).
- There is a waiting period before the payments start, so you usually set payments to start after the end of your sick pay.
- It covers most diseases that make you unable to work in the short or long term (although each policy is different – we check the fine print for you).
- You can claim as many times as you need during the policy period.
Income Protection is tax-free
Losing your regular income, even if only for a short time, could ultimately create a huge hole in your savings to pay your bills if you do not have income protection. Worst case: if you suffer from a serious illness, illness or accident, you could never return to work.
Few of us could cope financially if we were not working for more than six months. Income protection insurance provides a tax-free income for as long as you need it, until retirement age, if you are unable to work due to long-term injuries or illnesses.
How much will Income Protection pay?
Income protection insurance helps you get to the financial position you were in before you lost the ability to work. The maximum income you can replace through an income protection policy is the after-tax income you have lost.
This is usually calculated as a percentage of your salary before tax, but the actual amount depends on the company that provides your cover and the cover you choose.
Income Protection for the self-employed
If you are self-employed, being unable to work is also likely to mean loss of income. Self-employed people can take out individual policies to meet their needs, but it is important to check on which basis the insurer will pay.
Typically, the payment is your pre-tax share of the company’s gross profit after deduction and expenses in the last 12 months, before the date of your injury or illness diagnosis. Some policies will also work on average income over the last three years, which is usually a best option, although it may cost more for cover. If your income fluctuates year by year, it may be worth considering.
When you take out cover, you can choose between:
Guaranteed Cover – premiums which will remain the same amount throughout your policy.
Reviewable Cover – meaning your monthly premiums could increase or decrease in the future.
How long until your plan kicks in?
How long you have to wait for payment after filing a claim depends on the waiting period you choose. Typically, you can choose between 1-24 months. The longer you choose to wait, the lower the premium for your cover will be. Although not everyone has a deep savings pot or generous sick pay to wait too long for their cover to kick in.
Are you looking for reassurance if the worst happens and you are unable to work due to illness or injury? Life is unpredictable, and we’re here to help ensure your affairs are in order. If you would like to discuss the Income Protection options available to you, please contact us and we can find a policy carefully tailored to your needs.
Plans will cease at the end of your chosen term. If premiums are not maintained, cover will be cancelled.