Accidents and serious illnesses can happen to anyone, no matter how careful or health conscious they are. Income protection can help you to meet your financial responsibilities and maintain your lifestyle if you find yourself unable to work through an accident or illness.
What is Income Protection Insurance?
Income protection is sometimes used as a blanket term to refer to different types of cover that will pay out if you become unable to work. These can include schemes such as Mortgage Payment Protection Insurance (MPPI) and Critical Illness Insurance (CII).
Income Protection Insurance (IPI) pays out a regular income if you become unable to work due to long-term sickness or disability. This income is tax-free and usually pays out a proportion of your salary until you reach retirement age or are able to return to work, whichever happens first.
Income Protection Insurance is sometimes also known by names such as Permanent Health Insurance or Income Replacement Insurance.
Do I need income protection?
Some employers offer generous sickness benefits that may be payable until retirement age, but these are the exception rather than the rule. Anyone unable to work due to sickness or disability will be eligible for state benefits but these may not pay enough to allow you to meet your existing financial commitments or maintain your current lifestyle.
When thinking about Income Protection Insurance, you should consider whether you would be able to meet your financial commitments if you were unable to work. Some people might consider their monthly mortgage payments might be the most important factor while others might prioritise rent, debt repayments or the disposable income required to maintain their lifestyle. If you live with a spouse or partner and both of you work, consider how you would cope with just one income.
Other types of cover
Income Protection Insurance is generally considered to be the most wide-ranging and comprehensive form of protection but other types of cover are available. These usually apply to more specific circumstances and can include...
- Mortgage Payment Protection Insurance – This covers repayments due on a mortgage if you are unable to work due to sickness, accident or unemployment. It does not cover any other bills or liabilities and usually only lasts for a set period of one or two years.
- Payment Protection Insurance – This is similar to Mortgage Payment Protection Insurance but applies to non-mortgage loans or credit card bills. This type of policy has limitations and usually pays out for a maximum of 12 months.
- Critical Illness Insurance – This pays out a lump sum should you suffer certain medical conditions such as cancer, a heart attack or a stroke. Not all illnesses and medical conditions are covered by Critical Illness Insurance, even if they are serious enough to prevent you from working.
- Personal Accident Insurance – This pays out in the event of a physical accident. The payment is usually in the form of a lump sum. Some Personal Accident Insurance policies can also be extended to cover illnesses. This type of policy has limitations and usually pays out for a maximum of 12 months.
Medical history and disclosure
In order to apply for Income Protection Insurance, you will typically have to answer questions about your current health and medical history. Some insurers may require you to undergo a physical examination while others may gather information via questionnaires or interviews conducted over the phone.
Some pre-existing medical conditions may exclude an applicant but you should always tell the whole truth when making an application. Non-disclosure or providing false or misleading information at the application stage could lead to your insurer refusing to pay out – perfectly validly – just when you most need the cash. In some cases it could even result in prosecution for attempted fraud.
How much will I pay?
Payments are usually made by regular premiums but there's no single 'one-size-fits-all' answer as to how much this premium will be. Factors that affect the cost include your income (and thus the size of any potential payout) and the proportion of that income that would be paid.
The nature of your occupation may affect your premium, especially if it is considered a high-risk occupation. Age and health considerations such as whether you smoke will have a bearing, as will the period of time covered. As mentioned above, Income Protection Insurance typically lasts until retirement age but this is not always the case and an individual policy could apply for any set period of time.
What if I can't do my job but I can do another?
Most income protection policies will pay out if you are unable to continue in your own occupation. You should be aware though that some policies may require you to be unable to work at all before making a payout. This may be important if you currently work in a specialised or highly paid job. If you change your occupation during the course of an income protection plan, you should inform your insurers.
Exclusions
Many income protection plans will have certain exclusions built in. This means you will not receive a payout if, for example, you become sick or disabled through misuse of alcohol or drugs, if you are injured while engaged in criminal activity or if you fail to follow medical advice.
It’s advisable to speak to a qualified adviser to help you decide what type of policy is best for you. An adviser will be able to search the market for you and find you a policy which is both competitive and tailored to your needs. They’ll be able to talk you through your options and help you make the right decision. Call Asda Advised life cover on 0800 9751208.
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