Income Protection

What is income protection insurance?

Formerly known as permanent health insurance, income protection is an insurance policy that pays out if you're unable to work because of injury or illness. 

Income protection usually pays out until retirement, death or your return to work, although short-term income protection policies, which last for one or two years, are also available at a lower cost.

Neither income protection or short-term income protection pays out if you're made redundant - but they will often provide 'back to work' help if you're off sick.

Income protection is different from critical illness insurance, which can pay out a lump sum if you fall seriously ill. 

Why do I need income protection insurance?

Only a minority of employers support their staff for more than a year if they're off sick from work. Given the low level of state benefits available, everyone of working age should consider income protection.

How much does income protection pay out?

Income protection payouts are usually based on a percentage of your gross earnings: 50% to 70% is the norm. 

For example, say you earn £40,000 a year, and you take out an income protection policy designed to pay out 60% of your gross salary. 

Over the course of a year, your policy will pay out £40,000 x 60% = £24,000. 

The good news is that payments from income protection policies are made free of income tax.

When does income protection pay out?

Income protection policies pay out only once a pre-agreed period has passed, generally ranging from one to 12 months after you put in a claim.

The longer the 'deferral' period you choose, the lower your premiums. The default deferral period tends to be 13 or 26 weeks, but it can sometimes be as low as four weeks.

Where the insurer only pays a successful claim for a short term, no further payments will be made after this 12, or 24 month period. You should consider this carefully.

Our advisors will discuss your individual circumstances with you to advise an optimum deferral period.

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