Income protection is does exactly what it says on the tin. It will pay out an amount of income in event of any accident or illness which prevents someone from not working.
This can be one of the most worthwhile policies along with critical illness cover that anyone could take out.
These policies are a must for the following:-
- Self-employed who probably have no guaranteed income in the event of an illness/accident.
- Employed with no guarantee of income or their income paid for a few weeks, 1 month, 2 to 6 months.
- Bread winners who have large outgoings – mortgage, children’s private education and / or children’s university.
Claim periods known as deferred periods are set to coincide when the income is expected to stop should an accident or illness occur.
These can be anything from 1 day, 1 week but are generally from 1, 3, or 6 months. There can be a 12 month deferred period *.
(*Someone on 6 months full pay and a further 6 months half pay may want a tailor-made recommendation to fill the shortfalls.)
Providers allow applicants to insure their income of self-employed profit up to around 50% to 70% approximately. Currently this is paid out free of Income Tax.
There are 2 types of policy: –
- A Budget type which tends to insure the applicant for up to 2 years. Most insurers will insure the applicant to age 60 / 65. Some will just pay out upon 1 claim over the insured period – the working age and other will allow several unlimited claims over that working period. Both though will pay out the monthly benefit until the applicant recovers and goes back to work or stop when the 2 years is up, so whichever comes first. This represents good value for money.
- A Full Permanent Health Insurance type. This will pay the insured person until return to work or to the end date of the policy. These policies are long term and could be to age 50, 55, 60 or 65 plus. There is no limit to the number of claims and if someone could not go back to work for the life of the plan then it would pay out for the term, say to age 65 if an accident should occur at age 36 whereby the insured would never work again. These policies can work out dearer. They are good value for young applicants.
You can choose level cover or increasing cover.
Some cover is better than no cover at all. Policies can be increased at any time (subject to health).