What is Income Protection insurance, and why should it be a priority?
By: Nadine Woodcock
Tags: Income Protection, Insurance, Life Insurance, Specialist, Critical Illness

According to the Association of British Insurers (ABI)1, one million workers a year find themselves unable to work due to a serious illness or injury.

Having Income Protection provides a safety net of sorts, allowing households to maintain income levels close to those before stopping work due to illness or injury.

This type of insurance usually covers you if you’re unable to work due to a stress-related illness, mental health or a physical health condition.

Protecting yourself again loss of income will not only relieve potential financial burdens, but also allow you to focus more on your recovery and rehabilitation should you find yourself unable to work due to illness or injury and suffer a loss of earnings.

Income protection insurance is a long-term policy that pays you out weekly or monthly income if you are unable to work because of long-term illness or incapacity.

Planning for the unexpected

It is important for families and single earners to plan ahead and have an understanding of how they would be affected in the case of illness or injury. These considerations include:

· How much income support you could get from State Benefits, if you are eligible;

· How much income support you can get from their employer, if any; and

· How you could top up your income to the level you need to pay bills and maintain your standard of living.

Research from ABI shows that there are an exceptionally large number of middle-income working age households that would see their household incomes fall substantially if the main earner could no longer work.

The reality of relying on state benefits

A study conducted by the Centre for Economic and Social Inclusion (CESI) for ABI2 found that “there are 10.8 million middle income households in the UK that would be entitled to relatively little or no State support if the principal earner had to stop work, and would see their income drop substantially if they rely on State support alone as their income safety net.”

It is therefore important to know how you would be able to pay your living expenses should you be unable to work, and Income Protection Insurance can be a part of that.

Types of Income Protection Insurance:

1. Individual protection: This provides an ongoing income to replace lost earnings due to long illness or injury.

2. Group Schemes: Some employers provide income protection for their employees. These policies usually have fewer exclusions, but this varies between insurers.

How much does income protection pay out?

For individual policies, the money is paid directly to the policy holder and is tax-free. Income protection pay-outs are based on a percentage of your earnings — usually between 50 to 70% of your salary.

For group schemes, policies usually have a higher maximum benefit, and are paid to employers, who then pass it on to their employees.

Getting the right advice is critical

Nadine Woodcock is a specialist protection adviser who will ensure that you have the right kind of cover for your own unique circumstances. You can book a free, no-obligation call for advice on whether this is the right insurance for you.

Sources:

https://www.abi.org.uk/

https://www.abi.org.uk/globalassets/sitecore/files/documents/publications/public/2014/protection/welfare-reform-for-the-21st-century.pdf