Income Protection
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State incapacity benefit and Statutory Sick Pay for 2008 is £75.40 per week. If you can pay all of your bills with this amount if you should become unable to work for health reasons, then you might feel that you don't need this cover. If you couldn't, then we hope that this section will provide you with sufficient information to make an informed choice about whether you wish to do anything about it or not.
Income Protection Insurance, allows one to insure essential income and the policy will provide you with a tax-free income if you are unable to work due to an accident or illness. This insurance allows you to concentrate on getting better rather than worrying about how you are going to pay your bills. Furthermore, term "non cancellable" applies to this type of policy, which means that the insurance company cannot cancel the policy (providing you continue to pay the premiums), usually, no matter how many times you may claim. You on the other hand can cancel the cover at any time if you wish.
You can generally cover anything up to 60% of your current income, although this does vary between insurers. Some insurers also link their payments to the Retail Prices Index, keeping pace with the true cost of living. The premiums are relatively inexpensive and the cost for this cover can be kept to a minimum by only replacing the amount of your income that would be essential if you couldn't work. Obviously, your own views and circumstances dictate what this amount needs to be which may be nowhere near to the 60% maximum. So there is no one size fits all formula because even the definition of what is "essential" will differ from one person to the next!
You can also insure full time stay at home parents. A policy will pay out an income to cover any costs incurred employing someone else to carry out important household duties, such as the school run, cleaning and cooking, should the carer fall ill.
As you might expect, there are better or worse definitions of "being unable to work" so what you can be covered for depends on the definition of incapacity you require. The most common are:
· Own occupation - covering you if your accident or illness prevents you from carrying out your own occupation and as such is deemed to be the top of the range of definitions;
· Any suited occupation - covering you if your accident or illness prevents you from carrying out your own occupation and any other occupation specified by the insurance company;
· Any occupation – only covering you if your accident or illness prevents you from carrying out any occupation whatsoever;
· Activities of daily living – only covering you if your accident or illness means you are unable to carry out a selection of everyday tasks, such as washing and dressing yourself;
· Activities of daily working or personal capability assessment – only covering you if your accident or illness means you are unable to carry out a selection of work-related tasks, such as walking, communicating and working with your hands.
As you would expect, the premium for Income Protection Insurance depends various factors which includes the amount of income you wish to provide and the term of the plan, your current state of health and medical history, age, sex, occupation, level of incapacity you choose and your chosen deferred period. We can provide you with no obligation quotations as well as expert advice on the merits of the different plans available.
The deferred period is the number of weeks you can manage before you need the income payments from the policy to kick in. Usual deferred periods you can choose from are 4, 8, 13, 26, 52, 56, 104 or 112 weeks. If, for example, your employer pays you sick pay for 12 weeks, you could pick a deferred period of 13 weeks, meaning your income payments from the policy will start once your employer’s sick pay has stopped. The longer the deferred period you choose, the cheaper this insurance is.
An Income Protection Insurance policy will start to pay out after the agreed deferred period. These payments will then not stop until you are either: well enough to return to work, reach the end of the policy term, reach retirement or die.
Other Benefits
In addition to the main benefit some policies will also include provision for proportionate and rehabilitation benefits. Proportionate benefit, where offered, means that if the nature of your incapacity allows you to take up an alternative occupation, but you cannot earn the same level of income, the policy will pay out a reduced amount on top of your new salary. Rehabilitation benefit is an income payment that helps you if you do return to your main occupation, but earn less as a result of your incapacity. This is generally restricted to a short term, such as 24 months, after which payment will stop.
The terms of both of these benefits, if they are offered at all will vary between policies and insurers.
If you need more help deciphering the complex exclusions and differences in cover, seek some advice and contact us today.
Why would I need it?
You may already insure your car, your home and its contents, your pet or your life. In fact it is interesting to note that when taking out a mortgage many people would insure their life in the event of death or a critical illness and their property. But just consider this for a moment. Unless you are living off savings, an inheritance or getting deeper into debt, pretty much everything we spend our money on comes from our income. It is this very income that you are insuring with this type of policy. So how important is it in the scheme of things? Cashflow is crucial!
No matter how much we might love our jobs, for the vast majority of us, our income is essential and without that income our life situations can quickly become very testing to say the least. Coping with this when we are in perfect health can be challenging enough but it is another ball game altogether when we're not.
How much does it cost? We recommend that you allow yourself a few moments to find out for yourself because you may be pleasantly surprised. Pick up the phone and talk to a real person or simply request a quote , explore the different options that will work for you and then, when you know the facts make an informed choice. Call on 01626 337722 or Get quote now.
Mike Elkins Consultancy is licensed to provide advice on whole of market term products.