Income Protection

WHAT IS INCOME PROTECTION?

A policy that provides a regular income if you are unable to work because of sickness, injury or (in some cases) if you are made redundant.

WHY DO YOU NEED IT?

Many people make the mistake of thinking that should they fall ill, have an accident or lose the ability to work, the State will step in. If only that were true! – the rules governing sickness benefit claims have changed dramatically.

Before April 1995, you could qualify for long-term sickness benefit if you were rendered incapable by illness or disability, of doing your own job of work. Now the rules state that you will only qualify for long-term sickness benefit if you cannot do any job of work. In other words, only if you are completely incapacitated will the State pay you any benefits. This means that, to all intents and purposes, there are currently no long-term sickness benefits in the UK.

Income Protection should be considered if you would not be able to maintain your standard of living on State Benefits alone.

If your regular outgoings are normally met from income, then taking away that income can have drastic and wide ranging implications including inability to meet mortgage and loan payments, as well as basic household bills and living costs.

Plans are available for employees, self-employed people and even those who do not work but are responsible for managing a home.

When taking a policy out you can normally set it up in a variety of ways – each will pay out in a different way and therefore has an effect on the monthly premium. The different criteria include:

•  Occupation definition
•  Deferred period
•  Guaranteed or Reviewable premiums
•  Increasing or level benefits

It is important to ensure you take out the policy that best suits your circumstances, not necessarily the one that provides the cheapest premium.

WHAT POLICIES ARE THERE?

Accident, Sickness & Unemployment Cover (ASU): A policy that provides a tax-free monthly income if you are unable to work as a result of medium term sickness, incapacity or unemployment (redundancy). This type of cover usually only pays a benefit for 12 – 24 months.

Permanent Health Insurance (PHI): This is a policy that pays out in the event that you are unable to work due to accident, sickness or disability. It does not cover redundancy. This policy will pay out for a defined period of time, usually to retirement or another age specified at point of application. It usually covers a certain percentage of the income you were earning (e.g 60% of your gross salary).

Mortgage Payment Protection Insurance (MPPI): This is a form of ASU which is directly linked to your mortgage – the amount of cover is dependent upon the amount of your mortgage payments and any associated insurance costs.

Payment protection insurance is optional. There are other providers of Payment Protection Insurance and other products designed to protect you against loss of income