Income Protection Insurance

Coping with financial obligations in the event of sickness or accident is one of the major concerns of each of us, especially those who are the primary wage earner of their household. Although you can claim for state benefits, it is impossible to survive if you would rely on that alone. If you don’t have any alternative source of income, then you may want to consider taking an Income Protection Insurance (IPI).

An IPI is an insurance policy that covers 50-70% of your income in the event that you will be unable to work as a result of long-term illness or accident. The amount that you will receive is free of tax and multiple claims are allowed for short-term medical conditions. Benefits will be paid to you regularly until your retirement, death or recovery from illness – whichever comes first.

In order to help you decide whether this is the right protection for you, here are a few information that you need to know about Income Protection Insurance.

How much does it cost?

On the average, monthly premiums start at 5 GBP per month but it varies from one person to another depending on individual circumstances. Factors such as age, gender, health condition, job, lifestyle and your elected deferred period are evaluated to establish the amount that you have to pay. In essence, the higher your risk is, the more expensive it will be.

What is a deferred period?

It is the length of time that you have to wait from the time you stopped working to the time the policy would start paying. It normally ranges from 1to 24 months and it is up to you to choose the deferred period. The longer you would wait, the lesser you pay.
In order to determine the appropriate deferred period you must check how long your employer would pay you statutory sick pay. On the average, employers pay up to 28 weeks of your sick leave. You can set your policy to start paying once your sick pay stops.

What are the limitations?

IPI doesn’t cover you for unemployment or redundancy. You must remain employed in order for you to receive your benefits. There are also several exclusions wherein the policy holder may not be entitled to make a claim, some of these are sickness and injury as a result of drug and alcohol abuse, pregnancy, self-inflicted injuries, and war. Some insurance companies may not cover injuries arising from pre-existing medical conditions.

Is it also available for self-employed or contractual workers?

Yes. Self-employed and contractual workers can apply for Income Protection Insurance. In fact, they need it more than employed workers since they won’t be getting any sick pay in the event that they have to take time off work due to illness or accident.

What are the valid reasons for making a claim?

You can make a claim when you become incapacitated following an accident or an illness which will prevent you to perform your own or present occupation, any occupation suitable to you by virtue of your training and education, or any occupation at all. You can also make a claim if you will be unable to perform activities of daily living such as grooming, cooking, shopping, etc.

Income Protection Insurance is a regulated product and it requires absolute understandings of the terms of your policy since there are certain conditions that may invalidate your claim. It can be very expensive too depending on your personal circumstances. However, the advantage of this insurance over the others is that IPI can provide you a guaranteed protection until your target retirement. The benefit it pays also adjusts in accordance to inflation to ensure that the amount you receive is competitive enough for you to maintain your lifestyle.