Daniel Condren talks us through income protection.

What is income protection and how does it work?

Income protection is a policy, just like life cover or critical illness, but this one actually replaces a customer’s income, in the event they are unable to work due to an accident or sickness. It would replace a monthly income so that you can still pay the bills. People think that they can’t have income protection just because they don’t have a mortgage, but everybody needs income protection.

Will income protection cover me if I lose my job?

Income protection does not cover redundancy. It only covers if the customer cannot work due to accident, sickness, illness or injury. If they do want to look into redundancy cover, it can be arranged separately, but is not a part of income protection.

What’s the difference between life insurance and income protection?

Income protection is based on you being unable to work, but it pays out as a monthly replacement. If you don’t get sick pay, would you be able to pay your monthly bills without another form of protection, unless you have substantial savings?

It’s also a great policy even if you do get employer-based sick pay, to continue after your sick pay ends. If you don’t have to make a claim until after six months of being out of work, the price of your premiums is going to be lower.

Income protection would pay out if you were off for short term illnesses after that deferred period, but it can also pay out for long term illnesses. If you had a serious illness, or became disabled, an income protection plan would continually pay you that income until retirement or death. The policy is still in place following a claim, when you return to work, and you can claim on it again if that illness comes back and you’re off work again.

There are different types of income protection policies out there, mostly we try to cover people until retirement, but if that cost is too high per month, we can do a short term option. The payout is not forever, but it covers your income for either a two or five year period. Don’t think that it’s either all or nothing, there are other ways that you can look at income protection.

How do I make a claim?

Income protection is based on your current earnings, so some insurers want you to provide proof of your earnings at the onset of the policy. They will want to see a pay slip or a contract, which means it’s quicker when it comes to making a claim.

Other insurance providers want to see the proof of income when you make a claim, so you have to provide proof at that point. You have to keep the insurer updated if your job changes, or if your benefits change and you don’t need the deferred period to be as long or as short.

The category of your job is very important when it comes to income protection. If you’re doing a high risk job such as an engineer, your risks will be much different to an office-based worker who is sitting in front of a computer, therefore the premiums to protect that income are going to be very different. It may affect your payout if anything changes and you haven’t informed the insurer.

How much cover can I get?

If a customer is earning £50,000 a year, you cannot find an income protection policy that would fully replace all of their income. Typically providers would provide up to 50%-60% of their income. Income protection is designed to pay essential living costs, rather than replace a lovely lifestyle.

When you get a quotation, look at what the maximum you could have, but you don’t have to take that. You might only need £1,500 a month. Insurance brokers help you to look at how much you need every month to pay the mortgage, gas, electric and water bills, as well as food and council tax. You might have one partner that earns a lot more than the other partner, so think about which person needs the cover most, and take advice, because it’s such a complex thing.

Is it worth getting income protection insurance?

Yes, all insurance is a good thing. There are many people that might argue that it’s a waste of money, but it depends on the customer’s age. Risks change at different points and you’re more vulnerable if you’ve just taken out a big mortgage, or you’ve got children. We rely on that income because it pays for everything, so if that income stops for however long, it’s going to affect you. If you don’t have a policy in place, look into it and speak to your brokers about income protection.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE