What is Income Protection Insurance?

What is Income Protection Insurance?

Income Protection is a form of insurance that’s designed to help support you financially if you have time off work through injury or illness. It’s often considered by self-employed people who don’t receive sickness pay, or by those with physical jobs who rely on good health to make their living – but, most importantly, it only covers you if you’re unable to work due to illness or injury: it does not pay out if you are made redundant.

So what does Income Protection Insurance cover?

Income Protection insurance covers most illnesses that leave you unable to work. What that means, exactly, depends on your individual policy. For example, it may cover you if you can no longer work in your current job (due to stress-related illness) or if you are unable to do any work at all (due to a serious heart condition for example). There will also be ‘exclusions’ or conditions that aren’t included, such as self-inflicted injury or normal pregnancy.

The other factor to think about is there is usually a set period of time before the Income Protection Insurance pays out any money to you. This can be linked with your policy premiums, so the less you pay for your policy, the longer you may have to wait for your cover to pay out should you need it.

What’s the difference between this and Critical Illness Insurance?

They are two very different products. After a successful claim, Income Protection Insurance pays a percentage of your gross salary or take-home pay (usually 50 – 70%) as a regular payment to you for a period of time, until you’re able to return to work. You can claim as many times as you need to while the policy is still in force.

Critical Illness Insurance, on the other hand, provides financial help if you are diagnosed with serious illnesses such as cancer. It pays out one lump sum, which is an amount you decide on when you take out the policy. Once you’ve claimed, the policy comes to an end.

How do I know if Income Protection Insurance is for me?

Nothing in life is free, so it’s worth taking time to think carefully about whether Income Protection Insurance is for you. It’s also a good idea to discuss your options with a financial adviser as not all cover is the same. Here are some things to think about before taking out a policy – and remember, income protection insurance doesn’t cover you for redundancy:

  • What would happen if you got ill and couldn’t afford to pay the bills?
  • If you’re employed, do you have sick pay to fall back on? 
  • Self-employed? What would you do if you couldn’t work for any reason? 
  • Can you afford the level of cover you’ll need? You need to set premiums at an affordable level, but also make sure the policy will cover your bills if you do make a claim. If you’re struggling financially, you might have to focus on saving money instead.

Finally, it’s worth mentioning that any money you receive from this kind of policy may affect benefits you’re receiving, if those benefits were calculated on your regular income. If you're unsure what that would mean for you, do speak to a financial adviser before taking out a policy.

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