Most people are never prepared for unfortunate changes in their circumstances, such as you or a partner having to take time off work. You may be lucky to have some savings but are they enough to look after you and cover everyday expenses? Income protection is an important safety measure that can provide a regular replacement income if needed.
What is income protection?
Income protection is an insurance policy that keeps your finances secure if you cannot work. This policy provides you with a significant percentage of your yearly earnings, helping you stay clear of any debt, mortgage, or other financial issues.
How does income protection work?
An income protection policy, also known as permanent health insurance, works by paying you a regular income if you are suddenly unable to work due to illness or disability.
If you have fallen sick, suffered a health emergency or become permanently disabled, you have the choice when choosing your policy if you want to defer payment, depending on the sick pay you are entitled to. This is called a deferred policy, and the longer you choose to defer the cheaper it is. However, for many people in the private sector, who aren’t eligible to sick pay or it isn’t enough to cover bills, they may choose for their policy to kick in as soon as they are off sick. This all depends on you and your situation so it is important to ask the questions and do the research to ensure you are covered.
What illnesses does an income protection policy cover?
An income protection policy covers most illnesses that prevent you from working. Depending on your policy agreement you may want to check which illnesses you are covered for, otherwise consider another insurance policy.
How much does an income protection insurance policy cost?
There are a number of factors that are considered when it comes to your income protection policy and will therefore determine the cost. Factors that are considered are:
• How much of your income is covered
• When you want your policy to end
• How long you want to wait before payments are made to you. This will depend on your home situation and the sick pay you are entitled to.
How much should you expect to be paid through income protection?
Policies may vary, but most likely the amount you can claim will not replace the exact amount of money you earned before you had to stop working. Most policies will cover around half to two-thirds of your earnings before tax, typically between 50% and 65%.
How long does income protection last?
These payments last until you can return to work, retire, pass away, or reach the end of your policy agreement. Depending on what happens first, your policy will continue.
What is the difference between income protection insurance and critical illness cover?
Both income protection and critical illness cover will provide you with financial support if you suffer an unexpected injury or illness, allowing you to spend the money on whatever needs be, with no restrictions.
With critical illness cover, you will receive a lump sum of tax-free money if you need to undergo surgery, are diagnosed with an illness, or become permanently disabled. This is a single lump sum that allows you support during a health issue, allowing you to focus on getting better. This cash pay-out can go towards travel expenses for receiving treatment, everyday bills, a mortgage, medical treatment, or any modifications to your home that you may require due to your illness.
Income protection differs from this as it provides you with a regular income/payment in place of your salary if you are suddenly unable to work. This policy is used to bridge the gap for you until you can return to work but providing you with the support and removing financial worry during this time. Income protection covers a broader definition of injuries and illnesses compared to critical illness insurance, which is more specific. Both require research and consideration before settling on a policy.
Why do I need income protection?
With many insurance policies we don’t feel we need them until the unthinkable happens and it’s too late. When taking out a policy, you are considering you and your family. We try to get our customers to think ahead in terms of their home situations, support, health and worst-case scenario if something were to happen.
If you are employed, do you have sick pay that you can fall back on to help life continue as normal whilst you get better? And if so, how long will this last? For those who are self-employed they may not be entitled to sick pay, so need to consider what they would do if they were injured or sick and had to take time off work.
Depending on your lifestyle, are you able to afford the level of cover you will need? Considering how much you want to pay but also ensuring your policy will cover your bills if you need to make a claim.
These are all questions we ask our customers, to ensure they are fully protected if their circumstances change, and they have to take off work.
Want income protection for yourself?
Chat to income protections advisors at Mortgage Solutions Belfast. Our advisors are here to help you find the right policy and rates for your situation. We are fully trained and can offer expert advice, free of cost. Once we ask the questions, we will be able to find you the right policy for you, at the right price and with the right cover.