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How does income protection work?
It’s a policy designed to replace your income if you are ill or you have an accident. It’s there to support you if you’re off work for an extended period of time, where your employer is no longer paying you.
Every company has a different sick pay scheme. They might pay you for a month, two months or six months. Some will only give you statutory sick pay. Your income protection will replace your income after your sick pay has finished.
Do I need income protection insurance?
Most people will benefit from it, but it does depend on how much sick pay you get from work and if you’ve got any savings that you could rely on. If you’ve got a lot of money sitting in the bank that you would be happy to use in place of your income, then you probably don’t need income protection. But not many of us have that luxury.
Once your sick pay from work has finished, you’ve got to consider how you are going to manage to pay your mortgage, your bills, your rent, your food – all those kinds of things.
Is income protection worth it? What are the benefits of income protection?
Your insurance will pay you 60% or 65% of your usual income – because it wouldn’t be right for you to be better off not working. The insurer needs to encourage you to get better and back to work.
The main benefit is giving you an income once your sick pay from work has finished.
Is income protection tax deductible?
No, not under UK rules at the moment. But an important feature of income protection is that you don’t pay tax on the monthly income you receive.
What am I not covered for?
Some lifestyle choices could mean you can’t get cover. If you have a dangerous hobby like potholing, motor racing or anything like that you would probably need a separate insurance policy to cover you for that. But most accidents and illnesses are covered by your income protection.
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Some couples decide that because there’s two of them and the other person is earning an income, they can rely on that. So they take the minimum to cover the rent or mortgage and the utility bills, and perhaps the other person will pay for food.
But if it’s just yourself, then you’ve got to consider how much you would need to live on and how much of your salary you could comfortably survive on each month.
How long does income protection pay?
You can choose how long you want your protection policy to pay for. It might be 12 months, two years, five years or until you retire. Some policies have paid out because somebody has been in a car accident and has never been able to return to work. The income protection policy paid out until their pension kicked in.
How much is income protection insurance? What are the costs involved?
Everyone’s circumstances are different and it’s all calculated depending on your age, your health and whether you are in a high risk job. Your lifestyle, smoking and drinking all come into the equation – so give me a call and I can work it all out for you.
How can a mortgage broker help if somebody’s looking into income protection?
It’s very easy for us to work out the cost for you. Just give us a few basic details – your date of birth and those things I mentioned earlier. We can work it out for you and give you an idea of the cost involved.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The FCA does not regulate some forms of tax planning and for tax planning & investments we act as introducers only.