Income Protection Insurance
One of the biggest fears for many people is not being able to pay the mortgage – or meet other financial commitments
- if they are made redundant or unable to work due to illness or accident.
This is particularly worrying in the current uncertain climate, but one of the simplest ways to cover loss of earnings is by taking out income protection.
What is income protection Insurance?
Income protection pays out a regular tax-free replacement income if you are unable to work because of ill health or an accident; it enables you to pay the mortgage, as well as the daily costs of living.
How does it work?
Income protection policies pay out a set amount of income after a specified period of time, and you can elect a waiting period of between one and 12 months; the longer you defer, the cheaper the policy.
It usually then pays out until you either return to work, retire, the policy expires – or death.
How much does it cost?
Premiums are based on age, health, amount covered, term of the policy, waiting period, and whether you smoke.
For a 25-year old male with cover until the age of 60, the average premiums range from £23 per month for a four-week deferral period, to £11 per month for a 52-week deferral period (*).
The rates for women are slightly higher, and the average cost of for a 25-year old female with cover to age 60 range from £34 per month for a four-week deferral period, to £15 per month for a 52-week deferral period (*).
Should I take it out?
While life insurance might be the first protection policy that springs to mind when you have children, and mortgage payment protection insurance (MPPI) the first policy when you buy a new home, income protection could actually be the better option.
This is because it’s a lot more likely that one or both parents will not be able to work through long-term sickness than through dying, and because MPPI offers limited cover, and policies can be relatively difficult to claim on as they often include a number of exclusions.
