‘Even though it seems a long way off, we do worry about what happens if either of us gets ill. We want to make sure our family does not have to carry the load of our mortgage payments and bills.’
Income Protection PlansCreated by Verity in Insurance
Have you ever thought about the possibility of not being able to work due to illness or accident? How would you afford to pay your bills, your mortgage and other necessary costs in your life?
If you are employed, you may receive some form of income protection insurance from your employer as a benefit. But what if your company only offers limited cover or none at all? Perhaps you are self-employed? Who will help you pay your monthly expenses if you can no longer earn a living?
As unpredictable as life can be, there are ways of minimizing financial burdens if you plan ahead. One way of ensuring your future income isn’t negatively impacted by illness or injury is to invest in independent income protection insurance.
Most policies can be taken out into your late fifties, but must be a minimum term of 5 years. Typically, if you do claim on these policies, you will get anywhere from half to two-thirds of your usual pre tax earnings, a reduction resulting from the tax free nature of the payouts and the deduction of state benefits you can claim. However, some providers offer as much as 70% of your income.
As most people who have an illness or injury which prevents them from working will be entitled to statutory sick pay up to 28 weeks, almost all policies have a delay between the date of the claim and the first sickness benefit payment. Some providers set a minimum wait of four weeks, while others allow you to choose from a variety of waiting periods from as quick as two weeks to as long as 52 weeks. Typically, the longer the waiting period, the cheaper your premiums could be.
The cost of these policies depends on a variety of other factors as well. The healthier and younger you are, the less you are likely to pay as you are at less risk of getting ill. If you have a dangerous job, you could be deemed higher risk and subsequently have to pay higher premiums. Unfortunately, if you are male you will most likely have to pay a bit more as men make slightly more claims than women. Furthermore, lifestyle and hobbies play a huge role in assessing your premiums – if you like deep sea diving in your free time, or prefer to smoke and drink regularly, most insurers will deem you a higher risk.
Throughout the life of the policy, it is up to you to notify your insurer of any changes in your personal circumstances in regards to health and income. Should you ever need to make a claim, you do not want your policy to reflect a lower income than you currently survive on. Otherwise, you will be paid a benefit amount that will not cover your current day to day expenses. Furthermore, a full, candid report of family and personal health histories at time of starting your policy is paramount in ensuring you will indeed be covered at all.
Shop around to find a policy that works best for you. There are flexible policies which allow you to change your level of benefit, waiting period and end date of your policy to suit your changing circumstances over time. You will also need to decide if it is important for you that payments increase in line with inflation – as different policies offer this as an option.