5 benefits of income protection insurance in a post-COVID world
Statistically, we’re more likely to fall ill during our working life than pass away. This statistic, as well as the recent global coronavirus pandemic, has led many people to think about their finances and what would happen if they were unable to work due to serious illness.
There’s no denying that many of us would struggle financially without our usual monthly income.
Thankfully, this is why financial protection policies such as income protection (IP) exist, to provide cover in the event you become too ill or injured to work for an extended period of time.
Providers will often pay out up to 70% of your usual income in monthly (tax-free) instalments to help you fund essential daily living costs and minimise any financial disruption at an already stressful time.
But what are the benefits of taking out this type of cover? Award-winning UK life insurance broker, Reassured Advice share their top 5 income protection benefits…
1. Income protection payments aren’t tied to a specific financial commitment
Unlike other types of financial protection on the market, income protection isn’t tied to a specific expense – such as a mortgage or other large debt. This means you can spend your payments however you see fit.
Commonly, most people will choose to cover whatever their usual income would fund, this could be:
- Rental payments
- Mortgage payments
- Bills
- Childcare costs
- Transport costs
- Other daily living expenses
- Leisure costs (for example, gym membership)
Anything you’d struggle to pay for while out of work can be paid for using income protection payments.
As our home is our largest financial commitment, it makes sense to use payments to cover this expense. But the benefit of income protection is that if you have funds left over, you have the freedom to use the money for whatever you need.
2. Provide yourself with a financial safety net
Fortunately, many of us will receive sick pay form an employer if we became seriously ill or sustain an injury and couldn’t work.
Unfortunately, not everyone will be entitled to sick pay from an employer. In particular, self-employed workers. As a result, falling ill and becoming unable to work as a self-employed worker can result in a devastating loss of income.
This is where income protection can be extremely beneficial, as long-term IP policies can protect your income up until retirement age – providing cover for your whole working life.
This can help to give self-employed workers peace of mind that they can still receive a portion of their income if they were unable to work, helping to provide a much-needed safety net to fall back on.
3. No specific list of illnesses
Some other forms of cover, such as critical illness cover, will only allow you to claim for illnesses that are listed within your policy.
This can make making a critical illness cover claim a tricky endeavour as not all illnesses will be covered and not all policies cover the same conditions. Even if your illness is listed, it will need to match the insurers definition.
In contrast, with an income protection policy, there’s no set list of illnesses or injuries that you can claim for. Therefore, you can claim for any illness or injury that leaves you unable to work for a prolonged period of time.
Typically, when making a claim, the illness or injury will just need to leave you unable to work for longer than your deferred (or waiting) period.
The deferred period is chosen at the point of application and after this time your payments will begin. For example, a policy with a 2 month deferred period means your payments will begin after 2 months of you being unable to work.
4. Affordable, flexible and personalised plans
As each person has different needs, each person’s requirements for income protection will be different and these personal circumstances will be taken into account during the application process.
When taking out an income protection policy, you’ll have to freedom to choose many different aspects about your policy. These can include:
- Policy length – how long you’d like to be cover for (long term or short term)
- Length of payment period – how long you’d like to receive payments for
- Length of deferred period – how long you’d like to wait before receiving your payments
- Premium payment type – how you’d like your premium to be calculated (choice between guaranteed, age-banded or reviewable premiums)
- Definition of incapacity – what you’d like to be covered for (choose between own occupation, suited tasks or any occupation)
This helps you to secure the policy most suited to your needs and will allow providers to calculate the price you pay for your premiums.
With both full income protection and budget solutions available, there’s an income protection policy to suit all needs and budgets.
5. Layer with other policies for a complete and comprehensive solution
If you’re looking into other forms of protection, you don’t just have to choose one. Budget permitting, it’s completely possible to take out more than one policy to help provide an all-encompassing solution.
This could be an income protection policy to protect you and your family during your working life, as well as a life insurance policy to protect your loved ones if the worst were to happen to you.
This would help you to take care of essential costs if you were ever unbale to work, as well as take care of financial commitments for your family after you’ve passed away (such as ensuring they can remain in the family home, covering future family living costs and providing the funds to cover your funeral).
Where can I buy income protection?
Income protection can be bought directly from any income protection provider or through a broker service, like Reassured Advice.
Using a broker service allows you to compare multiple quotes from the UK’s leading providers for free to help you get the right policy at the best price.
You’ll also benefit from a wealth of industry knowledge and will be able to ask questions at any stage of the process to ensure you’re getting the policy you need.
