Simply, Income Protection is a plan that pays you a regular, tax-free income, should you be unable to work due to injury or illness.
That sounds good! Does this include all illnesses?
Well, not really. If you already suffer from an ailment, for example a back complaint, then you are unlikely to be covered for it. The company may wish to see a report from your GP, or ask you to undertake a medical examination.
An Income Protection Policy means that for anything unexpected, you will be covered. Typically, most plans provide you with ¾ of your wage you would have received, tax free.
So, how much will I my monthly premiums cost for Income Protection?
Well, your age when taking out your Income Protection will be taken into account – the younger you are, the cheaper your premium. Sometimes, your gender can play a part -men tend to suffer from less illnesses than men so their premiums will be cheaper.
Also to consider is the deferment period – this is the period you have to wait before you start to receive payment. If you decide that you require a shorter deferment period, then your monthly premiums will be more expensive.
Your current occupation also matters – if you have a dangerous job, for example, then you may find your plan is more expensive. Your current health status (are you a smoker?) will matter too.
What’s the difference between a reviewable of guaranteed premium?
A reviewable premium means that the insurance company can review your premiums and decide if they can increase the amount you pay to them monthly. This process normally happens every 5 years. A guaranteed premium means that you will pay the same amount, regardless, throughout the fully policy term.
How much money will I receive if I claim Income Protection Insurance?
Income Protection Insurance will usually pay around 65% of your gross salary, tax-free which will be paid until your normal retirement age.
I’m not sure if I want to risk taking out an Income Protection Policy – should I?
The end decision is yours. Of course, knowing that you will be financially secure in the long term is a great feeling; you will know that you will have a regular income to pay the mortgage and bills. You will know that everything you have built up in the past is safe.
However, there are policies on the market of varying qualities. Always make sure you look at the policy carefully and take your time to research different suppliers.
Is there anything else I should consider when taking out an Income Protection Plan?
Yes. You should always make sure that your insurer provides you with a plan that is bespoke to you. There are many companies that sell cover to particular professions – nurses and teachers, for example – which are tailored to your individual situation.