Income Protection
Income protection insurance is a type of protection insurance that pays out a regular monthly benefit.
The policy will pay out if you become unable to work due to an illness or injury during the length of cover
and suffer a loss of earnings. The majority of the insurance providers describe the illness or accident as incapacity.
Each policy has what is known as a deferment period attached to the policy. This is a length of time that has
to pass before the policy will payout. The clock will start ticking on the deferment period from when you first
become unable to work. The main periods of deferment are 4 weeks, 8 weeks, 13 weeks, 26 weeks, 52 weeks and 104 weeks.
The longer the deferred period for the income protection insurance the lower the final premium is that you will have
to pay. These type of polices can often be quite occupation sensitive. So certain companies will rank certain occupations and
only give them certain deferment periods rather than letting the client choose which they would prefer.
When doing research into which income protection cover to purchase it is important to know how much
critical illness cover
is needed. The calculation used to work out how much cover to have should be the level of earnings being earned prior to the client
becoming unable to work. The important part to consider about income protection cover is that the policy is paid out free from tax.
This in turn means that you would not need to cover the full amount of how much you get paid per month as this is with tax.
A good indication is if you earn under £2500 per month then you would look to cover 65% of your monthly salary and if you were to earn over
£2500 per month then 40% of earnings.
In addition to these points it is important to remember that each specific company are also going to knock off any income or payments from any other
income protection plan you may have. They will also deduct any pension payments you may have and any ongoing income from your business or employer.
It is also important to remember they will deduct any State Incapacity Benefit from the final sum paid per month.
Income protection can be taken by anyone so long as they are employed or self employed. In some contracts a house person is also covered under the
contract, more specifically these normally are classified as someone working less than 16 hours per week. This sort of protection is not normally offered
as a joint contract like the other policies we offer. If you were to have a husband or wife or partner that requires cover then it is advisable for them to take a contract for themselves.
The specific restrictions placed on the contract are normally that the policy holder has to be aged between 18 and 59 when the cover commences and the cover is not
normally allowed to continue after the policy holders 65th birthday. There is a normal minimum term of 5 years placed upon the contract or more often that not this would run to a specific age.
When assessing the income insurance the insurance companies will define your income in a number of different ways.
If you are employed then they will look at your pre tax earnings for PAYE assessment purposes. This is normally ascertained from
the well known P60 form. In addition to this they would also look at any benefits in kind that could be lost in the event of
incapacity. If you are lucky enough to receive any sort of company dividends then these are often counted as earnings.
If you are self employed then things are classified slightly differently. The insurance company are likely to classify earnings
as the average taxable income over the last three financial years. This is basically your net profit and if the business has not
been trading for 3 years then normally an average is taken over the period the business has been running for. Regardless of you
being employed or self employed the income insurance will not normally take into consideration any savings or investments you may
have.
If you were to make a claim after proceeding with your income protection quote it would be assessed in a number of different ways.
The duties of the clients occupation and their ability to do them is the main one also if you can’t perform the essential duties of your
occupation or struggle to perform any three activities of daily work. When obtaining your income protection quote it is also
important to realise that you can take level or increasing cover. The level cover is where the selected amount of cover will remain the same
throughout the length of the policy. Unless you take a reviewable premium the payments on this type of policy will remain constant.
The other type of plan you can take is increasing cover this is where on each anniversary of the contract the amount of cover taken out
will increase alongside the RPI (Retail Price Index). If you were to take the increasing option and then decide to change your mind on
most contracts you can freeze the increase so it stops increasing.
On the income protection taken then you can still add a number of addition benefits to the plan. The majority of the providers
offer these benefits however they will be an added cost to the plan. The first one of these is proportionate cover. This is where if
you were to change occupation as a result of incapacity and received lower earnings then a regular monthly income would be paid.
There is also a rehabilitation option included in some contracts. This is when if you have to make a claim on you plan and subsequently return to work and earnings are reduced due to the incapacity a regular monthly income is made to cover the balance between current and previous earnings.
One of the other options of your income protection cover that can be taken is the hospitalisation cover. This would kick in by
providing a regular income for up to 13 weeks by most companies if you have to go to hospital for six or more consecutive nights.
If you were to change occupation whilst your plan is live this would have little or no effect. However bearing this in mind if you
were to swap to a less dangerous or hazardous occupation if may be beneficial to re-look at the plan as the premiums maybe able to be
reduced. Similarly if you were to receive an increase in your salary at work it also maybe worth looking at the plan again as the plan
will not cover salary anymore. As with the other forms of protection available you can also add the payment protection option normally
to your policy. This would cover premiums if you were unable to work due to illness or injury.
Income protection insurance is one of the less known polices with life insurance and critical illness policy being more popular. However it can be invaluable to those who decide to take it out and take the pressure off what can be a terrible situation for all those involved. The only commitment you have to make to the majority of the contracts is to agree to pay the regular premiums through the full term of the policy. When underwriting it is important to be as honest and truthful as possible and also at the point of a claim to give all the relevant details possible. The over all aim of this type of plan is to give regular income if you could not work or lost income/earnings due to an accident or if you were to become sick. At Unbeatable Quote we understand this and our experience and knowledge can help guide you to the right contract for your needs. We search the market to offer the best possible policy at the best possible price to help you should you need it at all.