Why do I need Income protection ?
What is Income Protection?
Income protection is a type of insurance that replaces some of your income if you’re unable to work because of illness or injury. It provides monthly ‘tax free’ payouts, which can help you pay your main bills e.g. your mortgage, utility bills and shopping etc
Think of it like ‘sick pay’ – whilst some might have emplyers sick pay scehems, often that only lasts 3 months, 6 months or 12 months – but what happens then? the bills still need paying?
What if you’re self employed or a contractor on zero hours? you might not have any sick pay at all – an income protection policy can provide you with a valuable monthly income whilst you get better.
How does income protection work?
Income protection insurance, can help replace some of your earnings if you’re unable to work due to illness or injury. Typically you can cover 70% of your income ( as you cant be better off not at work than at work),. But 70% of your income is quite a good level of cover – remember its a tax free monthly payment – so thats net of tax = i.e you take home pay! This could help you pay essential bills like your mortgage, rent and other outgoings such as utilities and food, enabling you to focus on your recovery.
Payments are made monthly as a fixed amount and start after a deferred period (a waiting period) which you can choose from 4 to 26 weeks.
e.g if you had 3 months employers sick pay, you might want to set your deferred / waiting period to 3 months – so it starts as soon as your employers sick pay stopped. – OR – if you were self employed and had no sichk pay you might want it to start after 4 weeks i.e. almost staright way to ensure you still had some money coming in.
You can claim as many times as you need while the policy lasts. But you’ll typically need to return to work for at least 16 hours a week for at least six months in a row before you can make another claim.
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Why have income protection?
If you get sick or injured and can’t work, income protection insurance can:
- pay you part of your monthly income
- pays out if you need to take time off work for an illness or if you’ve been injured
- support your recovery and get you back to work sooner
The payout is tax-free and can help you protect your finances while you recover. The money can cover anything, like:
- bills
- mortgage or rent
- childcare costs
Because you won’t pay tax on your monthly payments, it can replace most of your salary, depending on what cover you choose.
How much does Income protection cost?
Monthly premuiums can start from as little as £8 per month ! Your premium depends on few things, like:
- How much monthly cover you actually want ? e.g. a payout of £800 a month or £8,000?
- Your age
- Your medical history and your family’s medical history
- Your job
- Your income level
- How much alcohol you drink ( if excessive)
- Your choice of deferred / waiting period
- If you’re a smoker (or use other tobacco products)
You could also add on indexation. This allows you to increase your cover in line with inflation – but lets chat about that !
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How to work out the level of cover you need for income protection insurance
To work out the level of cover you need for income protection insurance:
start with how much your take home pay currently is
take away the amount you would get in state benefits
take away any work related costs such as travel, food and clothing
add on any extra expenses you might need if you become ill or disabled such as extra heating costs or the costs of medical equipment