Quick guide to income protection insurance
Most of us aren’t aware of how financially vulnerable we’d be if we couldn’t work for medical reasons, especially if it was for a long time. Do you know how long you’d be able to cope without an income? Would you be able to support yourself once your sick pay and savings, if you have them, run out?
If you haven’t thought about these things, I don’t blame you – most people haven’t. But it probably also means you’ve never considered getting yourself covered with income protection, the kind of insurance that pays out if you’re too ill or injured to work. It can be a very useful kind of protection to have in place, especially if you have financial commitments or dependents that could be affected by you being out of work.
You may already have life insurance, but it might not cover illness, only death. If you don’t have income protection, here’s a few things it’s helpful to know before buying:
1. It pays out monthly if you can’t work for any medical reason
Income protection is the kind of insurance that pays out monthly if you need to claim. The idea being that it replaces part of the income that would be missing if you were too ill or injured to work. It pays out for any medical reason (physical or mental) – so long as a doctor has signed you off as being unfit to do your job.
2. You can buy short-term or long-term cover
When buying income protection, you’ll need to choose between short-term or long-term cover. Short-term only pays out for a fixed period of time if you need to claim (usually 1, 2 or 5 years) – which makes it the cheaper option. Depending on what happens to you in the future, this could be a sufficient type of cover for you. Long-term, on the other hand, pays out for as long as you need it, until you’re well enough to go back to work or your policy ends – making it a more expensive but more comprehensive option. It’s up to you (and how much you want to spend each month to be insured) what level of cover you go for.
3. Income protection always comes with a ‘waiting period’
This is the amount of time you wait before your policy starts paying out, after you’ve become unable to work for medical reasons. The longer your waiting period, the cheaper your policy will be – but it means you’ll have to wait longer before you start receiving payments (meaning you’d need another way to support yourself financially during that time).
4. It’s ideal if not working would leave you struggling financially
Most people would struggle financially if they couldn’t work because of an illness or injury. Having income protection in place can make the difference between being able to cope financially in this situation, or not. If you needed to claim, it would pay you a monthly amount, helping you cover the bills and keep up with the cost of life when you might otherwise be left struggling.
Hopefully that gives you a good starting point. You may find this guide useful if you need help understanding more about the ins-and-outs of income protection – including how it pays out and who needs it. Whether or not you need it yourself will depend on your personal circumstances, and whether or not you’d benefit from having a financial cushion if illness or injury came your way. It also depends on how much you’d value the peace of mind of having protection in place.
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