What is Income Protection Insurance?
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.
Income Protection, also known as IP insurance, is a form of insurance that helps support you financially if you have time off work and suffer a loss of earnings because of injury or illness.
People often think about taking out Income Protection Insurance when they are self-employed and don’t receive sickness pay, or if they rely on good health to make their living, such as those in physical jobs. However, it is important to remember that 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.
What does Income Protection Insurance cover?
This type of 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 are unable to work due to a stress-related illness or a serious heart condition.
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
Another factor to think about is that there is usually a set period of time before the policy pays out any money to you. This is 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 Income Protection and Critical Illness Insurance?
These are two very different types of cover. After a successful claim, Income Protection Insurance pays a percentage of your gross salary 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, however the policy has no cash in value at any time.
On the other hand, Critical Illness Insurance is designed to provide some financial help if you are diagnosed with a critical illness as defined in your policy. Critical Illness policies generally do not pay out if you die and, like IP insurance, do not have a cash-in value at any time.
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 this type of cover 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 and how long is this paid for?
- 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 any benefits you’re receiving, if those benefits were 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.
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