If you were unable to work due to sickness or injury, would you be able to survive on the savings that you have or sick pay from work? If you can’t earn an income for either of those reasons, it may affect your ability to keep up with mortgage payments or financial commitments. This is worrying especially due to the current situation, however one of the simplest ways to cover loss of earnings is by taking out income protection insurance.

WHAT IS INCOME PROTECTION INSURANCE?

Income Protection Insurance pays you a regular income if you can’t work due to an accident or sickness. It only covers events beyond your control, so you are not likely to be covered by a policy if you are fired from your job or if you injure yourself on purpose.

You can’t claim income protection payments straightaway if you fall ill or injured, and you usually have to wait a minimum of 4 weeks (usually called a waiting period). This is because you may not need the payments straight away as you may be able to claim statutory sick pay for up to 28 weeks after you stop work.

HOW MUCH DOES IT PAY OUT?

Income protection insurance pays you a percentage of your salary every month, which can then be used to cover your bills and other living costs. It’s extremely useful for people who work in dangerous jobs and want to make sure that their mortgage payments will always be covered.

It’s important to note that Income insurance will not replace the exact amount of money that you were earning before you had to stop working. This is because some of the money will be deducted for the benefits that you can claim, and the income you receive from the policy is tax free. It will usually pay out between 50% and 70% of your earnings.

HOW LONG WILL IT COVER ME?

Income protection covers you until you return to work, enter retirement, death or your policy ends – whichever comes first. During the length of the policy, you can claim as many times as you need to.

HOW MUCH DOES IT COST?

The amount you will pay is determined by your policy and your individual circumstances. Factors that will come into consideration when it comes to how much you will pay include:

  • Your occupation
  • Your age
  • Percentage of income you want covered
  • Your health
  • How long you want the policy to last

DO YOU NEED IT?

Not everyone will need Income protection insurance, and it’s important to ask yourself some questions before you take out a policy.

  • What would you do if you fell ill and couldn’t afford to pay your bills?
  • If you have an employer, do you have sick pay to fall back on and how long is it paid for?
  • If you’re self employed, what would you do if you couldn’t work?
  • Can you afford the premium every month?
  • Could you survive on government benefits?
  • Do you have enough savings to support you?
  • Do you have a family member to support you?
  • Could you claim your pension early?

It also depends on the type of cover that you need, whether it’s accident sickness and unemployment, payment protection insurance which covers the repayments on outstanding loans, or mortgage payment protection insurance which makes sure your mortgage payments are covered.