The pandemic, global supply issues and Brexit have made the world a very uncertain place in 2021. This has led to many people looking to protect their income and consider an Income Protection Insurance policy. However, there is much to consider when deciding on the policy that is right for you. We hope this guide can help provide insight into Income Protection policies.
What is Income Protection Insurance?
Income Protection Insurance has been around for decades and was formerly known as permanent health insurance. In essence these insurance policies provide a monthly pay out if you are unable to work due to illness or injury. An Income Protection policy will usually continue to pay out until retirement, death or you return to work. However, there are lower premium policies which offer a shorter term pay out, normally for 1 or 2 years. These policies are often confused with Critical Illness Insurance policies which offer a lump sum if you fall seriously ill.
Why Do I need Income Protection Insurance?
The world is more uncertain than ever, and this has seen a huge uptake in these policies from savvy UK consumers. This coupled with the low level of government support available highlights how
this type of insurance is vital for everyone in the UK. However, according to a recent survey conducted by Which? Only 9% of the British public have some form of Income Protection, compared with 41% who have life insurance and 16% subscribing to a private health insurance service.
What would happen to you and your loved ones if you suddenly were unable to work? An Income Protection Policy can remove the stress from such a situation.
How Much Does Income Protection Cost?
There are many factors which will affect the monthly cost of an Income Protection Policy. This will include your health, whether you smoke, the level of cover needed as well as the sort of job you have. Insurers tend to group jobs into 4 categories which highlights the risks involved in such an occupation.
Class 1: Professional; managers; administrative staff; staff with limited business mileage; admin clerk; computer programmer; secretary.
Class 2: Some workers with high business mileage; skilled manual work; engineer; florist; shop assistant
Class 3: Skilled manual workers and some semi-skilled workers; care worker; plumber; teacher
Class 4: Heavy manual workers and some unskilled workers; bar person; construction worker; mechanic
In general, the riskier the occupation, the higher the premiums
How Much Does Income Protection Pay Out?
Income Protection policies are based on a percentage of your current earnings. They typical pay out up to 65% of your existing remuneration. These payments are also not liable for income tax which means a larger income should you need to claim on the policy.
What Else Should be Considered When Selecting an Income Protection Policy?
There are another 2 core factors to consider when selecting a policy. The first is “index-linked Income Protection”. This is often an added option you can select to add to your policy. These policies take inflation into account. Most businesses in the UK offer annual wage increases merely so employees can keep up with the inflation based increased cost of living. A standard policy will often not take this into account and will mean you are losing out in real terms. An Index-Linked addition will mean the pay outs will increase in line with inflation, so you receive the same level of benefit in real terms. This is always worth considering and can make a big impact if you are not able to work for a protracted period of time.
Another consideration is whether a “Stepped Benefit” income protection policy would be better for you. This requires you to understand your employer’s sickness benefits policy. This means that if your employer will pay your full salary for a period and then, for example, 50% after 2 months, the policy will match this to ensure your pay is maintained. Therefore, you receive a lower pay out from the policy whilst your employer pays all or part of your wage.
What Policy is Right for Me?
As I am sure you can see by now, the choice of policy is vast and must be fully understood before committing to it. We would always recommend speaking to an impartial third-party insurance consultant to gain a better understanding of what is available and which policy is right for you. Parkway are experts in Income Protection Policies and are helpful team are at hand to help you understand everything you need to know to make an informed decision. Call us today on 0800 001 6136 or click here and book a no obligation telephone appointments