What is Income Protection Insurance?
You’ve probably heard of income protection insurance at some point in your life, but do you know what it covers you for and how it works? This is a fairly simple but highly effective type of cover that could come in really handy for you at some point.
As the name suggests, Income Protection Insurance is designed to protect your income. What this means is that it can replace a good chunk of your earnings when you are unable to work. If you are therefore off work because of accident or illness then you will receive money from the insurance company to replace a percentage of your normal income. This is useful because statutory sick pay is a lot lower than most people’s normal income and it often isn’t enough to pay the bills, buy food and generally live a decent lifestyle. Obviously it can be a huge concern to be unable to work and then on top of this start to struggle financially. It is exactly this type of situation that income protection insurance is designed to cover and to help people avoid. The amount you receive from your insurance policy will usually be a fixed percentage of your normal monthly income, with 50% to 70% income coverage being common.
How Does It Differ from Payment Protection Insurance?
Another type of insurance that has been in news a lot in recent years is called payment protection insurance (PPI). This sounds kind of similar but it is actually very different from income protection insurance. The main difference is that PPI is only used to pay a certain loan or other debt when you don’t receive any income for a set period. Income protection insurance, on the other hand, is simply a percentage of your usual regular income that can be used for whatever purpose you best see fit.
How Does It Work?
If you get struck down by illness or suffer an accident that keeps you off work then you will need to make a claim, just as you would with any other type of insurance. Having done this, you normally need to wait for a fixed period before you start to receive your payments. This is known as the deferral period and you normally choose it at the start, when you first set up the policy. It works in kind of the same way as the claims excess on your car and home insurance, but you choose a fixed deferral period instead of a set monetary excess amount. This means that by making the deferred period longer you will likely pay a cheaper premium, just as a bigger excess makes your car insurance cheaper. For example, is you say that you can survive 3 months without receiving your insurance payouts then your Quote for Income Protection Insurance will likely be less than it would be with a 1 month deferral period.
How Much Will You Pay?
As well as the deferral period, there are a few other factors that will determine how much premium you will pay for this type of insurance. Your occupation is one of them, as clearly some jobs are more hazardous than others. It is also taken into account that it is possible to return to certain types of job sooner after illness than it is with others. You will often find that insurance companies offering this type of cover will divide the different types of occupation into 4 or so groups. In the lowest group –which is the least expensive – are the likes of administrative staff and computer programmers. The highest group usually includes heavy manual work and covers occupations such as mechanics and construction workers. You may also find that you get the option of different types of cover, such as guaranteed, reviewable and age related policies. The simplest way to find out whether Income Protection Insurance is going to be affordable for you is to get a quick online quote.
Have you ever been saved from a difficult financial situation thanks to insurance cover like this?