Have you thought about what would happen if you suddenly lost your income? How would you meet your financial commitments and make sure you and your loved ones didn’t suffer hardship?
Income protection insurance can protect your income in the event of you being unable to work.
The product is designed to partially replace your salary in the event that you cannot work so that you don’t fall behind with your payments. Income Protection policies can provide you with a tax-free monthly sum that is up to 70% of your gross salary.
Having an insurance policy to protect your income when you not able to work can give you peace of mind, and help you confidently plan for the future.
Statutory Sick Pay
You might be wondering why you need Income Protection if you’re currently working because you’ll be entitled to Statutory Sick Pay (SSP). SSP does provide you with some income but it’s likely to be a lot less than your current salary if you’re off sick for a long period of time.
Your employer may also have a sick pay policy but it may only pay out for a limited period if you’re off work due to illness.
Income Protection Benefits
Here are the main reasons why you should consider protecting your income:
Your Mortgage or Rent
If you have a mortgage, or pay rent, then you’ll want to make sure your payments are met and keep your home.
Support Your Loved Ones
If you have loved ones then it’s likely your income is supports them so you need to make sure that there is insurance in place to provide for them in the effect of something happening to you.
Types Of Income Protection
There are two different types of Income Protection policy:
Short term Income Protection
Short term Income Protection will pay out for a period up to 12 months and is the cheaper of the two options because the potential liability on the insurer is lower. The policy will cover up to 70% of your income in the event that an accident, sickness or unemployment means that you have no income, and these policies are often referred to as ASU (Accident, Sickness, Unemployment).
Long term Income Protection
Long term Income Protection will fund your lifestyle in the event that you lose your income for longer than a year. It will provide an income for you if you’re not able to work due to illness or disability.
The policy will pay an income until you can return to work, or until the end of the policy term, whichever is soonest.
The key difference between short term protection and long term protection is that long term protection doesn’t usually provide cover for unemployment or redundancy. However, long term cover is usually more expensive than short term cover because the insurer is likely to have a higher liability in the event of a claim; they will provide replacement income until your retirement age.