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Income Protection Insurance

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What is income protection insurance?

Income protection insurance is a cover that will help with your finances if something happens to you which means you are not able to work. Regular outgoings like mortgages, loans, rent and bills could be very difficult to sustain if you are unable to work because of illness, or long-term health difficulties.

If you lose your job and are unable to keep your financial commitments, it can put a huge strain on your circumstances. Paying the bills could mean dipping into savings. If you don’t have savings, you could be at risk of losing your home if you’re not able to keep up with the payments.

Income protection insurance provides peace of mind. Taking out a policy means that if something happens, your basic costs are covered.

Types of income protection insurance

Choosing the right type of income protection insurance is important. There are two main types of policy, each with slightly different benefits

  • Permanent health insurance

Permanent health insurance, or PHI as it is sometimes known, allows you to receive a set portion of your normal income if you’re involved in an accident. It will also cover you if you become ill and are unable to work.

The portion of your regular income covered can vary but can be often up to 50% of your gross salary.

Permanent health insurance should not be confused with private health cover. This covers medical expenses, but not usually any loss of income arising from them.

  • Accident, sickness and unemployment cover

With this type of policy, if you become ill or are injured, the policy will cover payments like your mortgage or rent. If you have other regular debts, these may be covered too.

This type of cover is referred to as ASU cover.

Features and benefits

Which type of income protection you choose will depend on your personal circumstances. The main benefits of each type are as follows:

PHI Cover

  • The payments you receive can continue until you reach retirement age
  • You are covered for accident or illness
  • If you are receiving employee sick pay, the insurance payments can usually be arranged to start when these payments stop
  • You might need to undertake a medical in order to be eligible for PHI cover

ASU Cover

  • The cover will usually be paid out for a maximum term of 12 or 24 payments
  • Some policies will allow you to add cover in the event of redundancy as well as illness or accident. This can provide further peace of mind that your finances will be protected if you lose your job.
  • ASU policies usually have a deferment period before a claim payout starts. You should check with your insurer to make sure the cover is right for your circumstances
  • Eligibility checks usually involve fewer health or lifestyle questions than PHI cover

Income protection insurance FAQs

Does income protection affect sick pay?

If you receive sick pay, your policy will usually pay out after your sick pay has finished. This is called a deferment period.

Who needs income protection insurance?

Many self-employed people take up income protection cover. Without sick pay to fall back on, it can give peace of mind that your home and family will still be secure if you are unable to work.

How much does income protection insurance cost?

Every policy will be calculated depending on the individual. Factors which are taken into account include your age, job, your health, and how much of your income you would like to protect.

Is income protection insurance the same as critical illness cover?

No. Income protection insurance will cover a portion of your salary until you are able to return to work, or you retire. Critical illness cover provides financial support if you are diagnosed with an illness which is covered by your particular policy.