What is income protection insurance?
Income protection, otherwise known as permanent health insurance, is an insurance policy that pays out if you're unable to work because of injury or illness. Income protection usually pays out until retirement, death or your return to work. However, there are short-term income protection policies, which last for one or two years, that are available at a lower cost. Neither income protection or short-term income protection pays out if you're made redundant, but they will often provide 'back to work' help if you're off sick. Income protection is different from critical illness insurance, which pays out a lump sum if you fall seriously ill.
Why do I need an income protection insurance policy?
A small minority of employers in the UK will support their staff for more than a year if they're off sick. Therefore, for this reason everyone of working age in the UK should consider taking out an Income Protection policy. Moreover, life has a habit of throwing us curveballs, much like the Covid-19 pandemic, so taking out an Income Protection policy can give you that extra peace of mind.
How much does it cost?
Your health, whether you smoke and level of cover needed will weigh into your premium, but your type of job also plays a major part in determining what you'll pay. Many insurers group jobs into four categories of risk, though some have more. For example, jobs may be divided into the following groups:
The costs of your income protection policy is determined by a number of factors, such as whether you smoke or the type of job you have. Many insurers also group job types into categories, such as:
-Class 1: Professional; managers; administrative staff; staff with limited business mileage; admin clerk; computer programmer; secretary.
-Class 2: Some workers with high business mileage; skilled manual work; engineer; florist; shop assistant
-Class 3: Skilled manual workers and some semi-skilled workers; care worker; plumber; teacher
-Class 4: Heavy manual workers and some unskilled workers; bar person; construction worker; mechanic The riskier the type of job you have, the more likely it is that you may need to make a claim. Therefore, those in the riskiest occupations tend to pay higher premiums.
All insurers will state that the riskier your job is, the highest your premium will be as you are most likely to make a claim.
When does it pay out?
Your income protection policy will be paid out after a pre-agreed period has passed, otherwise known as the 'deferral period'. The deferral period is a fixed period of time that has to pass before a monthly pay out can begin. The longer the 'deferral' period you choose, the lower your premiums. The default deferral period tends to be 13 or 26 weeks, but it can sometimes be as low as four weeks. How an income protection insurer defines your inability to work will also influence if and when your income protection policy pays out.
Looking to take out an Income Protection policy?
If you have any questions or need advice, don't hesitate to get in touch with one of our expert advisers today.