How would you keep a roof over your head if you or your partner couldn’t work because of illness, injury or you lost your job?
Taking out the right policy means Income Protection insurance will provide you with an income should you get injured, become sick or lose your job through involuntary redundancy; and you can start receiving an income immediately, if for example, you are self-employed, or defer it until your employer’s sick pay ends.
The monthly income you receive can then be used for any purpose you choose, including paying the mortgage or rent, household bills, medical bills, credit cards, nursery costs and so on. The maximum amount you could be paid each month varies from insurer to insurer, broadly 50-70% of your gross monthly income (i.e. your earnings before tax) and tax free under the current rules, although this might change in the future. We can even get cover for you if you are self-employed and can’t evidence your earnings.
It’s the one protection policy every working adult should consider.
Which? Money 2013.
With the ability to lock in the cost of your monthly premium (guaranteed premiums) when you sign up it’s worth noting that premiums are less when you’re younger, as you’re less of a risk, it’s a very good idea to anticipate your longer term need for Income Protection Insurance and buy it as early in your life as possible.
As an example, if you are 23, a non-smoker and in good health, then a premium of around £35 per month would provide you a monthly income of £1,375 for up to 45 years (the number of years to state retirement for a 23 year old) should you be unable to work due to an accident or sickness.
Policies that are taken out online without independent advice are only underwritten at point of claim and not at the outset of the policy, resulting in many claims not being paid out, so it pays to talk to an adviser to ensure you get an affordable policy that takes care of you before your savings run out.
Lightblue Online was set up to provide specialist help to people unsure how to go about choosing from the many Protection products available. For example, some policies will require a medical whilst others may not and Income Protection underwriters do not use a set list of conditions with many insurers operating without standard exclusions. So it’s important to make sure that if you’re buying a policy it’s the right one for you.
Our specialists will help you to navigate all the options to find the cover that is right for you and your family at an affordable rate.
Types of Income Protection
Accident and Sickness Protection may be the most important income protection you can have. If you are unable to work due to an injury or illness it’s there to cover your core monthly expenditures such as paying the mortgage or rent, household bills, medical bills, credit cards, nursery costs and so on.
A stand-alone policy should you lose your job through involuntary redundancy. It’s important to remember that if you choose Unemployment protection on its own it’s because you are worried you may lose your job, if this is the case you will also lose any protection for accident and sickness your company provided.
Income Protection Options
As with all things the more options you choose the higher the price. Income Protection is no different and different insurers load the options differently. It is therefore important to determine what you need and what you would like so we can find the best Income Protection policy available to you in the market place. Below are some of those options.
The number of weeks from when a policy starts before you can start to claim. This can vary from Insurer to insurer but is typically 60 days.
The number of weeks or months you can survive on, for example, your savings or company sick pay before you need to receive the income from the insurer. The longer the period the cheaper the cost.
Typically 12 or 24 months or for longer term policies, if you are unable to return to work, up to your selected retirement age. The shorter the period the cheaper the cost.
Level or Indexed
‘Level’ means that the amount you receive will remain the same throughout the time you have the insurance regardless of either your income or expenditure increases. Alternatively, the amount you receive can increase each year in line with inflation using either the retail price index or the consumer price index.
Guaranteed premiums would suggest that what you pay stays the same throughout the policy term unless you increase the required income amount. For some policies this is true, you pay the same amount month after month until the policy ends. For others its guaranteed to increase based on a rate table which means the price you pay in the future for each £1 is guaranteed to go up each year at the rate set out in the guaranteed rate table sent with your policy. You can, therefore, calculate what your premiums will be in the future..
If your premium is not guaranteed then the premiums can change each year due to age or changes to your health. Reviewable policies usually start cheaper than guaranteed policies, but they may end up being more expensive.
Own or Any Occupation
When the ‘Own Occupation’ definition of incapacity is chosen the policy can pay out for any medical condition that prevents you from working in your own specific job role. When ‘Any’ is used the insurer will only pay you if you are unable to perform any occupation. ‘Own’ is more expensive than ‘Any’.
Waiver of Premium
If Waiver of Premium is selected then when you begin receiving an income from the insurance policy the premiums no longer need to be paid until you return to work or your selected pay-out period is reached.
Back to Work Benefit
Receive a percentage of your income if, on returning to work, the illness or injury you claimed for restricts your duties and you earn less. Some insurers will also pay a top-up should you start a different occupation that pays less.
Benefits in Kind / P11D benefits
Some insurers also offer the option of protecting the value of any employment benefits such as a company car or private health insurance.