Short-term Income Protection

Income protection insurance, also known as permanent health insurance (PHI), is a type of insurance policy designed to protect individuals against the loss of income due to illness, injury, or disability. It provides a regular income replacement if the policyholder becomes unable to work and earn an income.

Here are some key features of income protection insurance:

1. Income replacement: If you are unable to work due to illness or disability, income protection insurance pays out a regular tax-free income to replace a portion of your lost earnings. Typically, this is a percentage of your pre-disability income, such as 50% to 70%.
2. Waiting period: There is usually a waiting period, known as the deferred period before the benefit payments commence. It can range from a few weeks to several months, and you can choose the length of the waiting period when you take out the policy. The longer the waiting period, the lower the premium.
3. Benefits duration: Income protection insurance policies can provide benefits for a specified period or until a certain age, such as retirement. The benefit duration can vary from a few years to up until the age of 65 or 70.
4. Eligibility and premiums: To be eligible for income protection insurance, you typically need to be between certain ages, usually 18 and 65, and be actively working. The premium you pay depends on various factors, including your age, occupation, health, and the level of coverage you choose.
5. Types of coverage: There are different types of income protection policies available, such as own-occupation cover and any-occupation cover. Own-occupation cover pays out if you’re unable to work in your specific occupation, while any-occupation cover pays out if you can’t work in any suitable occupation based on your skills and qualifications.
6. Policy exclusions: Income protection insurance policies usually have exclusions for pre-existing medical conditions or disabilities. It’s essential to review the terms and conditions of the policy to understand what is covered and what is excluded.

Income protection insurance can provide financial security during periods of extended illness, injury, or disability, ensuring that you can meet your financial obligations and maintain your standard of living.

It’s advisable to consult with insurance providers or financial advisors to understand the specific terms, conditions, and coverage options available to you based on your individual circumstances.

The question to ask yourself is, could you cope? If you lost your wage, would you still be able to pay the mortgage repayments, the household bills or any other expenses you currently have? If the answer is no, then you might want to consider taking out an income protection policy.

Income protection is something you should consider having in place if you wouldn’t be able to meet your financial commitments if you were unable to work.

Some people don’t think they need it because they have sick pay through their employer. Although this might be correct, it’s worth reading your employee contract closely to see exactly what sick pay you’re entitled to, as it might be less than you think. It may cover you for short-term sickness, but what if you were off for six months or more?

Income protection insurance usually covers a wide range of illnesses and situations and has the potential to pay out for many years, offering a great deal of peace of mind.

The cost of a policy will vary based on your individual circumstances and takes into consideration things such as your age, employment and health.

Family income benefit and income protection may seem similar initially, but they serve distinct purposes.

Family income benefit ensures that your loved ones receive a monthly income after your passing, whereas income protection offers monthly payments to sustain your income during periods when you are unable to work.

Family income benefit

• Providing cover for a specified period, which could be up to 40 years
• This could pay out up to £5,000 per month, depending on the provider…
• Payments will be made to your loved ones after your passing
• Payments are not subject to inheritance tax or income tax

Income protection

• Providing cover for a specified period, policies typically end by the age of 70
• This can cover up to 70% of your usual earnings
• Payments will be made to you if you cannot work due to illness or injury
• Payments can help cover shortfalls in your regular mortgage or rental payments, household bills and any day to day living costs
• Payments are not subject to inheritance tax or income tax

If it fits within your financial plan, you can consider taking out both policies concurrently: an income protection policy to safeguard your income during your working years and a family income benefit to ensure your loved ones receive a steady income in the event of your passing. Having both policies in force provides peace of mind and ensures that you and your family are secure regardless of the circumstances.

Critical illness and income protection insurance are often confused, as they both serve the purpose of paying out if you are unable to work.

However, the two are not the same.

Critical illness pays out a one-off tax-free payment if you are diagnosed with a life-threatening illness and unable to work.

Whereas, income protection insurance provides regular payments, equivalent to a percentage of your salary, to help with the loss of income whilst you are out of work.

Income protection tends to pay out for a wider range of causes, including critical illness, minor illness, accidents and stress.

Critical illness, on the other hand, only pays out on a life-changing illness but does not require you to be off work in order to make a claim.

Typically, income protection insurance is significantly more expensive than critical illness, is a far more complicated product and cover can differ dramatically between insurers.