Income protection cover is a type of insurance policy that can help to cover your outgoings with a tax-free monthly payment if you’re unable to work.
A good income protection policy can help you prepare for the unexpected, whether that’s illness, an accident, or being made redundant.
Income protection can provide peace of mind that you can cover your essential outgoings while you’re not earning your usual income.
The cost of income protection cover will depend on your income or the amount you want to cover, the policy type, the length of the policy and your age. Like life and health insurance, smoking can have an impact on the cost of your income protection insurance due to the health risks associated with the habit.
The level of protection provided by the three types of policy is reflected in the amount you will pay, with the most comprehensive cover likely to cost more. The top tier of policy covers you for injury and illness as well as unemployment, so provides you with more protection than a basic accident and sickness policy.
Income protection cover is usually priced as a monthly premium. Your premiums will not necessarily stay the same for the duration of the policy, especially if you’ve taken out protection until you plan to retire. When you compare policies you’ll be able to choose from policies that are fixed for the duration of cover or those that are subject to a yearly review.
The best way to find a good-value income protection policy is to shop around. You can do this quickly and easily by comparing quotes. Simply answer some questions (you will be asked questions about your employment, the type of cover you want and personal details including whether you are a smoker) and you’ll be able to compare policies and quotes from leading income protection insurance providers including Aviva, Vitality and Legal & General.
Income protection allows you to set the amount that you would like to receive if you are unable to work for one of the reasons specified in your policy. Most insurers will allow you to cover 55% of your monthly gross income, with a maximum level of 70%.
As an example, if your take-home pay each month is usually £2,000, you’ll be able to take out income protection cover for up to £1,400 per month.
While the product is known as income protection, you can choose to protect your income, your mortgage, a loan or credit repayment, or any other financial commitment. You should think about these essential outgoings when deciding on the level of cover to take out.
If you make a successful claim, your insurer will pay out the agreed amount in a monthly tax-free payment until you’re back in work or until the end of the maximum claim duration (most policies will pay out for a maximum of 12 months at a time).
You can choose from three basic levels of income protection cover:
Accident and sickness protection will pay out if you are unable to work after an illness or injury. Unemployment protection will cover you if you’re made redundant or lose your job unexpectedly (your insurer won’t pay out if you simply quit your job or if you accept voluntary redundancy). Accident, sickness and unemployment protection is the most comprehensive type of policy and will cover you for all of the above.
What’s covered in your policy may vary depending on the insurer, so it’s important to check your policy documents to make sure what’s included.