Income protection insurance – keeping things going

Unless you’re lucky enough to be independently wealthy, your income is probably critically important to you. Lose it due to long term illness or accident and your life could rapidly start to fall apart – unless you have income protection insurance to help.

Why?

You probably have regular monthly financial debt repayment commitments. These may cover things such as the mortgage, bank loans, HP repayments, credit cards and so on.

In addition, you also have what are sometimes called consumable spending needs – typically this covers things such as food, gas and electricity bills, clothes and so on.

If you suddenly lose your income and are unable to meet your regular debt repayments, you may find that the lenders will move rather more quickly to repossession and recovery action that you may think.

In such cases, government help is restricted to mortgage interest and even there it is limited.

In terms of your consumable spending, help will be limited to social benefits and surviving on those alone may prove to be a major challenge.

The worry of trying to deal with all these issues will be unlikely to help you recover and that’s why income protection insurance exists.

What sorts of insurance are available for loss of income?

There are two generic types of loss of income:

• short-term (typically less than one year of cover provided) – often dealt with by a form of income insurance called accident sickness and unemployment cover (ASU);
• longer-term loss of income due to incapacitation only (not unemployment) – this is called income protection insurance. This can sometimes pay out for many years – often until your retirement age.
  
  Income protection insurance provides you with a long-term monthly income in the event that you are unfortunate enough to become incapacitated and unable to work. You can then concentrate on getting better rather than fighting off your creditors and struggling to pay the bills.

What sorts of loss of income are covered?

The exact details of cover will vary between insurance companies but generally speaking, this form of insurance covers major incapacity arising from medical conditions or as a result of accident. Typically it will not cover redundancy as this is dealt with under separate policies.

What is needed to qualify?

When applying, you’ll be asked a range of questions. Using your answers (eg. age, medical condition, employment, how much cover you want etc) the insurance provider will calculate how much your premiums will cost.

If you have a serious existing medical condition, incapacity due to it may be excluded from cover or your premiums may be higher. In some cases, if you have a very serious condition, you may find it difficult to get cover or need to look a little harder for it.

Group schemes

Some insurers offer schemes that allow an employer to offer this form of cover to their staff as part of a pay and benefits package.

Such schemes are typically popular with employees (they may be able to join with fewer health questions) and employers may see benefits through increased employee retention. Employers may also be able to offset the costs in pay deal negotiations, as it is a provided benefit.

Summary

Whether you’re an individual or a company, spending a little further time in researching the significant benefits of income protection insurance may make sense.