Income Protection – Do You Need It?

income protection advice

Income Protection Insurance:

When your own regular income is suddenly stopped, it will pay out money to help you and your family meet important costs such as mortgage repayments and other bills. Whether you have a mortgage or other financial responsibilities, your income is vital to you and your family. If you suddenly lose your job or can’t work due to illness or an accident, you will need to make sure that you have a steady stream of income.

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Protecting your income:

Brilly Ant is a renowned thrill seeker. While some of the other InsureAnts prefer soak up the sun (and sangria) on their holidays, Brilly’s idea of relaxing is jump off of a bridge or zip-lining down the side of a mountain (no GrAnt, that has nothing to do with your trousers).

But Brilly wouldn’t put his life on the line if he didn’t have the right protection. Helmets and harnesses keep him safe during his extreme sports and his life insurance policy keeps him and his family safe should anything happen to him.

The future is uncertain and it’s impossible to protect yourself and your family from everything the world can throw at them. However, when it comes to protecting your income, there are number of options open to you.

So in between bungee jumping and karaoke singing, the InsureAnts have put together this guide to income protection insurance to give you an idea of what’s out there.

How does it work?

When you take out an income protection policy, you can set out the terms you want or which you think will help most if your income suddenly stops.

At the outset of the policy, you will have agreed a set amount which will be paid out and when it will be paid out. Money paid out under an income protection scheme is tax-free. Policies will have a choice of ‘waiting periods’, which is the length of time which must pass before you start to receive money. This can be anywhere between a month and a year. Your policy premiums will cost less if you have a longer waiting period written into your policy.

The length of time you receive money for will also be stated in the policy and can be until your get back to work, reach retirement age or die. Payments will also stop once the policy expires.

How much will it cost to take out income protection insurance?

As with any form of life insurance, the cost of your premiums will depend on a number of factors – age, health, whether you are a smoker or not.

Cost will also take into account the amount you want to be covered, the length of the waiting period and other terms of the policy.

As a broad guide, a 25-year-old male taking out cover until he reaches 60 can expect to pay anywhere between £10 and £23 a month, based on a waiting period of 12 months.

Women can expect to pay a little bit more with an identical policy for a woman ranging from £15 and £34 a month.

So do I need to take on income protection?

Income Protection Insurance may actually prove more useful than straightforward life insurance, especially in these uncertain times when job security is scarce.

There is a fairly strong likelihood of you or your partner being out of work through redundancy or long-term illness, whereas the Mortgage Payment Protection Insurance (MPPI) you take out with your ordinary life insurance will only pay out when you die or suffer critical illness. Life insurance can be tougher to claim on because providers are often changing which illnesses are classed as critical and some policies contain certain exclusions.

I’ve heard a lot about Payment Protection Insurance (PPI), should I consider it?

PPI has been in the news quite a lot recently due to the fact that many policies were mis-sold with consumers not being made fully aware of what they were buying.

Basically, PPI will help out with short-term debts such as loans and credit cards if you lose your job and steady source of income.

While it can be useful, if you are considering taking out PPI, make sure you explore all the facts and don’t just take out a policy with the provider who gave you the loan or credit card because it’s convenient. Shop around and you may find that going with a standalone PPI provider is better.

When is the best time to take out income protection?

The first thing you need to do before exploring the possibility of taking out income protection is to find out what you’re already covered for through your employer.

You will probably find that your employer has a sick pay provision, although the length of time you receive sick pay can vary between employers. Your job might also come with other benefits, so check this out before taking out income protection.

You should also work out what your monthly outgoings are to get a clear idea of how much cover you will need to take out to meet those expenses should you be unable to work. When you are calculating this figure remember that expenses such as petrol might be lower if you’re not travelling to work every day.

If you feel that you want to take out income protection insurance, don’t waste any time, get the wheels in motion as soon as you can. The younger and healthier you are, the lower you premium will be and you’ll also be well prepared should anything happen to you.

What other protection products should I be looking at?

Life insurance with critical illness cover can be another useful form of protection as it will not only pay out when you die, but also if you are diagnosed with a serious illness which prevents you form working.

When comparing life insurance, you will find that many providers offer package deals which combine life cover, critical illness and income protection. You may find this a cheaper and handier option than taking out separate policies for all three types of cover.

Whatever you choose to do, make sure you compare life insurance at InsureAnts.co.uk and always read through all quotes and policies carefully before parting with your hard-earned cash.

Income Protection Advice From InsureAnts.co.uk

Written By

Compliance & Finance Director. Senior member of the InsureAnts team and helps keep some of the younger InsureAnts in check. Contributor to the Life Insurance section of the company blog. Follow me on Google +.

Posted in Life Insurance Blog on July 17, 2013 by
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