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.
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.
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.
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.
Think carefully before securing other debts against your home. your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secutred on it. If you are thinking of consolidating existing borrowing you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
Mortgage Maze is a trading style of Charles Frank Finance Ltd. Charles Frank Finance Ltd is authorised and regulated by the Financial Conduct Authority. See https://register.fca.org.uk - FCA number 624668. Our Data Protection Registration is Z2962200.
There may be occasions when the firm charges a fee. This is dependant upon your circumstances, but it will normally be no more than 1% payable on completion.