People often think about taking out Income Protection Insurance when they’re self-employed and don’t receive sickness pay, or rely on their health to make a living.
What does Income Protection Insurance cover?
This type of insurance covers most illnesses that leave you unable to work. For example, it may cover you if you’re unable to work due to a stress-related illness or a serious heart condition. Income Protection only covers you if you’re unable to work due to illness or injury – it does not pay out if you are made redundant.
Is Income Protection Insurance the same as PPI? No – these are two different things. While Income Protection pays you a percentage of your salary if you’re unable to work due to illness or injury, Payment Protection Insurance (PPI) covers the repayments on a specific debt.
How much does Income Protection Insurance cost?
Your premiums will be determined by your policy and individual circumstances. Factors that affect the amount you pay are:
- Percentage of income you want covered
- When you want your policy to end
There’s usually a set period of time before the policy pays out any money.
This is linked to your policy premiums, so the less you pay for your policy, the longer you may have to wait for your cover to pay out if you need it.
What’s the difference between Income Protection and Critical Illness Insurance?
These are two very different types of cover. Income Protection Insurance pays a percentage of your gross salary as a regular payment until you can return to work. You can claim as many times as you need to while the policy is still in force, but there’s no cash-in value at any time.
Critical Illness Insurance is designed to provide some financial help if you are diagnosed with a critical illness that’s covered in your policy. These policies don’t generally pay out if you die and also have no a cash-in value at any time.
How do I know if Income Protection Insurance is for me?
Here are some things to think about before taking out a policy:
- 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 and how long is this paid for?
- If you’re 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.
Finally, it’s worth mentioning that any money you receive from this kind of policy may affect benefits that are calculated on your regular income. If you're unsure what that would mean for you, speak to a financial adviser before taking out a policy.