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Income Protection

Income Protection (IP) is designed to replace your income if you are unable to work due to accident or sickness. A successful claim will help you meet your monthly financial commitments, even if you are off work, by paying you up to 50% of your gross earned income Is the taxable income before any appropriate adjustments are made, for example income tax.   .

How does it work?

I’m employed

If you are an employee and you fall ill, your employer might pay you your full pay for a few weeks or months. By law, an employer must pay most employees statutory sick pay for up to 28 weeks, though this will probably be a lot less than your full earnings. After that, you would probably have to rely on state benefits.

However, some employers arrange group income protection insurance for their employees as a perk of their job, which can pay out an income after the statutory sick period. So check what you are entitled to.

I’m self employed

If you are self-employed, you won’t have group income protection insurance as an option so you will need to make your own arrangements.

It won’t happen to me

Hopefully you will never need to call on an insurance policy for your income, however this short film is a true story about a successful couple who were in the wrong place at the wrong time.

Did you know?

• 23% of pets in the UK are insured – are you insured?
• Employment and support allowance (state benefits) pays less than £90 per week – would that pay your bills?
• Statutory sick pay from your employer is paid for a maximum of 28 weeks at £79.15 per week (From 6th April 2009).

How much will it cost?

You pay a monthly premium The amount you pay each month.   throughout the term of the policy. Cost depends mainly on:

• Your age – at the time you start the policy. Older people are more likely to suffer an illness, so pay more.
• Your sex – gender can have an effect on the premium you pay.
• Your health – at the time you start the policy. If you have existing health problems you might be refused cover or have to pay more.
• Your job – some jobs are more likely than others to contribute towards illness. For example, a bank clerk is deemed to have a very safe job but a deep sea diver runs high risks and so would have to pay more.
• Hobbies and lifestyle – for example, smoking makes you more likely to become ill, so you’ll pay more.
• Waiting period – once you claim, there is a delay before payments start. You can choose how long this is - for example, from 4 weeks up to 104 weeks. The longer the waiting period, the less you pay.
• Access - If your health is poor or your lifestyle is considered risky, you may be refused cover or have to pay more than normal.

How much cover do I need?

• Check whether you already have protection in place in case you get incapacitated, and for how long that protection would last. For example your employer may have an income protection scheme in place you can benefit from, or you may have a payment protection insurance that covers your mortgage.
• State benefits, what am I entitled to should I become incapacitated?
• How much would I need to cover my monthly bills, less any state benefits if my income stops?

Example

The following example may help you decide the level of cover you need.

Sue is single and earns £26,000 a year before tax and other deductions. She estimates that, if she was ill for a long time, her budget would be affected as shown in the table below.

• Sue also works out that as a perk of her job, her employer will pay her half a salary for 52 weeks after the statutory sick pay period of 28 weeks. She therefore arranges for her policy to pay out after 80 weeks of incapacity (see waiting period above).

You may have considered critical illness cover (CIC) Life insurance provides lump sum protection in the event of death. Critical illness policies provide lump sum protection against diagnosis of one of a range of defined, survivable illnesses, e.g.: a heart attack. The policy may be on a single or joint life basis.   – which pays out a tax-free lump sum if you are diagnosed with a life-threatening condition listed in the policy – as an alternative to income protection insurance. But there are lots of common situations when CIC would not pay out – for example, if you had back problems or a stress-related illness.