If you own a car, a house or even a phone, then you’ll no doubt have insurance to protect against accidents or damage. When it comes to insuring possessions, we’re generally very thorough. The same, however, cannot be said when it comes to insuring ourselves. In the UK, only around 22% of adults have a life insurance policy. When it comes to insuring our income, this number drops significantly to a lowly 5%. However, numbers are growing, and in this post, our aim is to help people answer the question “Do I Need Income Protection Insurance”.
What is Income Protection
In the UK, approximately 1 million people are unable to work due to illness or injury. Income protection insurance provides cover against this eventuality. It will typically pay out a monthly sum, which is determined when you take out the policy, until you can either return to work, reach retirement age, die or the policy ends.
Having an income protection policy provides peace of mind that you’ll be able to pay your essential monthly bills should you be unable to work.
Income Protection – At a Glace
- Income protection insurance is designed to pay part of your income should you become ill or suffer a serious injury.
- You will continue to receive payments until you can return to work, retire, die, or the policy ends.
- Payments are generally made monthly to replicate a salary.
- There is normally a waiting period before the payments start. The duration of this period is set at the start of the policy. The longer the period chosen, the lower the monthly premiums should be.
- All policies differ, so it’s important to read the policy terms before you sign up.
- Most illnesses and injuries that would prevent you from working are covered.
- Multiple claims can be made during the life of the policy.
Who Needs It?
If you’re asking yourself “Do I Need Income Protection Insurance?” then to find the answer you need to review your own financial circumstances.
If you are employed or self-employed and are unable to work due to illness or injury, how will you pay your regular outgoings such as mortgage payments, rent and utility bills?
Fewer and fewer employers offer sick pay, and the majority would not support individuals for more than one year. If you are employed, you may be able to claim Statutory Sick Pay (SSP). However, this is only available for 28 weeks and pays out less than £100 per week.
If you have savings that could support you, then you may not need income protection insurance. Nevertheless, you need to consider how long your savings would last if you cannot work for a prolonged period.
How Much Does it Cost?
The cost of insurance will depend on your own personal circumstances as well as the provider you choose. There are a large number of income protection insurance providers, and so it pays to shop around.
Some of the factors that might affect the cost of a policy include;
- Your age
- Your occupation
- Whether you smoke
- The amount of alcohol you drink
- Your general health and your family history of health issues
- The range of illnesses and injury covered
- The waiting time between the illness or injury starting and the first payment
Other Insurance to Consider
Income protection insurance is not the only product available to help protect yourself for money problems.
Life insurance provides financial support to your dependents should you die.
Critical illness cover provides a lump-sum payment should you be diagnosed with a serious illness that is covered by the policy.
Family income benefit provides a regular tax-free income to your family should you die during the term of the plan.
Do I Need Income Protection Insurance Summary
Making a decision to take out income protection insurance should only be made after carefully reviewing your personal circumstances. If you were unable to work due to illness or serious injury, could you meet your financial commitments? If the answer is no, then income protection is undoubtedly worth considering in more detail.