The answer to this question depends on your appetite for risk. However, as a Maidenhead insurance broker (that’s right, we don’t just do mortgages), we think that income protection insurance is a must – particularly if you’re self-employed, you’re reliant on Statutory Sick Pay, or if your employer’s sick pay terms aren’t particularly generous.
But first, let’s explain exactly what income protection is.
What is income protection?
Imagine that you’ve fallen ill and are unable to work. The thing is, you’re self-employed or reliant on rather modest sick pay. What do you do (other than hope for a swift recovery)? After all, if you can’t work, whether it’s due to illness or injury – even if it’s not your fault – then it’s likely you can’t earn an income. And this is where income protection insurance comes in.
If you’ve taken out an income protection insurance policy, then you will receive a monthly income until you’re able to return to work, you retire, die, the policy comes to an end or you have received the maximum payout set for your policy.
Now, if you have a mortgage or any other major financial commitments, an income protection policy will ensure that your home isn’t repossessed, or that you don’t build up debts whilst you can’t work.
Does it cover what you earned before you couldn’t work?
No. Generally speaking, income protection will cover you for around 60 per cent of your typical earnings. As a personal policy, however, it’s paid tax-free to your bank account, which means that whilst you won’t be able to earn what you did prior to needing an income protection pay-out, it’s offset by not having to pay tax.
Can I claim for it as soon as I stop working?
No, there’s a deferred period – or waiting period – that needs to be observed before you start receiving payments. This can be from as little as four weeks to up to 52 weeks. The longer the waiting period, the lower the monthly payments are. Setting the deferred period is a balancing act between giving you the financial security you need and how much you’re prepared to pay for the policy.
Is income protection expensive?
The cost of the policy depends on a range of factors such as age, occupation, your previous medical history and your body mass index. The amount you’d like to receive each month and, as mentioned, the deferred period also has an impact on the cost of the policy.
The great news is that there are different payment periods that a policy can pay out for – indefinitely or 24 months – so there is flexibility when choosing the right plan for you.
Is it just for self-employed people?
No, not at all. It’s an important policy for self-employed people as it’s often their only way of securing an income in the event of illness, injury or accident. However, employed people take it out, too.
Remember, most companies will move their staff onto Statutory Sick Pay within six months. This currently stands at £109.40, which isn’t going to be enough to cover mortgage payments and bills (certainly not right now!). An income protection policy is usually set up to start paying out when the employer stops.
How do I buy income protection?
Because there are many variables at play when it comes to determining the cost of an income protection policy, we would recommend that you speak with an insurance expert. At Alton Mortgages, we are able to find the best income protection deals and guide you through the details so that you find a policy that works for you.
Thinking about income protection insurance? Looking to speak with a Maidenhead insurance broker? If so, contact our team of Berkshire insurance brokers on 01628 560820 or by emailing enquiries@altonmortgages.co.uk.