A guide to income protection

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No one wants to have to plan for the worst, but in the real world, it’s important to consider the fact that we aren’t invincible. Life insurance products such as income protection insurance are designed to help you feel a little more secure that you are protected against life’s risks.

So, how exactly does income protection work, what does it cover you for and will it break the bank? Here’s a quick guide to this incredibly important insurance product.

What is income protection?

Income protection is designed to, well, protect your income! It does what it says on the tin. When you take out an income protection policy, you pay monthly to your provider to allow you to claim if you were to become too ill or injured to go to work for a prolonged period of time. 

If you make a successful claim, you will be provided with a regular percentage of your salary to enable you to continue meeting your financial responsibilities. This is usually between 50-70% of your salary, but you decide when you take out the policy. It pays out in regular, manageable chunks as opposed to one large lump sum.

Once your payouts begin, they will continue until you recover and go back to work, reach state pension and retire, or pass away during the period of the claim. In any of these instances, your policy will automatically end. It’s worth mentioning though, that you can claim on an income protection policy more than once if needed. So, if you recover and go back to work but fall ill again two years later, you still have your policy in place if you want it.

What does income protection cover?

If something has rendered you too injured or seriously ill enough to be out of work, you are likely to be able to claim on an income protection policy. Most commonly, people claim for musculoskeletal issues and mental health problems, such as stress and depression.

It may be easier to talk about what won’t be covered under a policy. There are a few illnesses and injuries that you may not be covered for, and your terms and conditions will detail what these are. The main thing to consider is pre-existing conditions that you knew about before taking out the policy. These certainly won’t be covered. 

You may also not be covered for back pain or illness/injury that could have been avoided should you have followed medical advice or anything self-inflicted such as alcohol and drug misuse or a criminal act. Pregnancy also won’t be included, although some insurers might cover you for pregnancy-related complications. 

Basically, if it is not a totally unforeseen accident or issue, then you may find it pretty difficult to claim on.

Is income protection expensive?

If you are looking for an income protection insurance policy, you’re sure to find one that fits your budget as they can all be tailored to your needs. Everyone has different circumstances, so everyone’s income protection policy will be priced differently.

Your monthly premiums will be calculated based on a number of factors including your age, marital status, whether you smoke or have previously smoked, your lifestyle (such as high-risk hobbies), your job, health and weight.

It will also, of course, depend on how much cover you choose to take out. This will depend on your financial responsibilities and day-to-day costs; the size of your mortgage/rent payments, your bills, whether you have dependents that rely on your income. 

To get an idea of a ballpark figure, a 21-year-old non-smoker could be looking at paying around £8-20 per month, and a 56-year-old non-smoker could be looking at around £30-75. But it really does depend on your own circumstances.

Anyone who works – whether you are employed or self-employed – should consider income protection. This rings especially true if you have a family who will struggle to continue as normal if you are out of work and not bringing home the bacon. Protect your income and ensure your world can continue turning as normal even when it all feels upside down!