Should you become seriously ill at work, you’re covered with a few months sick pay but you have no income after your sick pay ends and as the main household earner, everyone is relying on you. It’s particularly worrying if you have children and a family to support financially, so what if there was a type of insurance that covers you for these unpredictable moments?
Income protection insurance covers you if you can’t work and earn an income due to a serious illness or injury. It allows you to rest easy knowing that if something did go wrong, you should be covered financially for the foreseeable future; whether that’s until you return to work, or until you retire.
Income protection insurance is a favoured form of protection because you can claim as many times as you need, regardless of whether you have received payments before.
However, once you make a claim, you will not receive the payments straight away. Payments usually follow a period of sick pay from your employer and generally, you set them to begin after the sick pay ends. The longer you wait for the payments, the lower your monthly premiums will be.
How Much Does Income Protection Insurance Cost?
Personal insurance is extremely subjective and will vary from person to person and insurer to insurer. Generally, there are a few influential factors that can influence the price you pay. For instance, if you’re a bit older, you may pay a bit more each month because the chances of someone older falling ill or injured is seen to be more common than someone younger.
Your job can be hugely influential on the price of your premiums. If you work in a dangerous environment (eg as a roofer or scaffolder), or somewhere you are likely to be exposed to illness (e.g. a hospital) then it’s likely you’ll pay more for your income protection insurance.
Smoking is not only bad for your health, but it’s bad for your insurance premiums. Most types of health-related insurance will see those who smoke as more of a risk and in the case of income protection insurance, you will be seen as someone who is more prone to illness.
There are a few policy-related factors that can also influence the price of your premiums, such as the percentage of your income you’d like to cover, the waiting period before your policy pays out and the types of injury and illness the policy covers.
In terms of the payout, income protection insurance usually pays out a percentage of your earnings, with 50% – 70% of your income being the most common amount.
What’s The Difference Between Income Protection Insurance and Critical Illness Cover?
On the face of it, both income protection insurance and critical illness cover seem very similar, but there are some distinct differences that may sway you towards one or the other:
Income protection pays out payments in the same way you would receive your monthly salary from work, whereas critical illness cover pays out one big lump sum in the event of a claim.
When you make claim with income protection cover, you can make as many claims as needed, whereas with critical illness cover, if you claim, you receive your payment and then the policy is terminated.
With income protection cover there is an agreed waiting period before you start receiving the payments (usually, deferral periods are around 13-26 weeks), whereas with critical illness cover, you get the lump sum payout a lot quicker.
Do You Need Income Protection Insurance?
According to the Association of British Insurers (ABI), 6.6m households would see their income fall by more than half if the principal earner left work. In the event of falling ill or injured, income protection insurance can allow you to maintain the lifestyle you led when you were healthy and earning an income. In addition, not all companies will issue sick pay, or you may be self-employed, so in its absence, income protection can be a real lifesaver.