Income Protection Insurance

Cover for you and your family finances

It’s important to be able to keep your finances healthy as you recover from an illness or injury. Being unable to work can quickly turn your world upside down. No one likes to think that something bad will happen to them, but if you couldn’t work due to a serious illness, how would you manage financially? Could you survive on savings or sick pay from work? If not, you may need some other way to keep paying the bills – and you might want to consider income protection insurance.

You might think this may not happen to you, and of course we hope it doesn't, but it's important to recognise that no one is immune to the risk of illness and accidents. No one can guarantee that they will not be the victim of an unfortunate accident or be diagnosed with a serious illness. This won’t stop the bills arriving or the mortgage payments from being deducted from your bank account, so going without income protection insurance could be tempting fate.

Providing monthly payments

Income protection insurance is a long-term insurance policy that provides a monthly payment if you can’t work because you’re ill or injured, and typically pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner.

Keep your finances healthy as you recover from illness or injury:

Replaces part of your income if you become ill or disabled
It pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner
There’s a waiting period before the payments start, so you generally set payments to start after your sick pay ends, or after any other insurance stops covering you. The longer you wait, the lower the monthly payments
It covers most illnesses that leave you unable to work, either in the short or long term (depending on the type of policy and its definition of incapacity)
You can claim as many times as you need to while the policy is in force

Generous sickness benefits

When you suffer a serious illness or injury, the last thing you should worry about is how you’ll pay the bills while you’re off work. After all, what if your sick pay should run out while you’re still recovering?

Some people may receive generous sickness benefits through their workplace, and these can extend right up until the date upon which they had intended to retire. However, some employees with long-term health problems could, on the other hand, find themselves having to rely on the state, which is likely to prove hard.

Tax-free monthly income

Without a regular income, you may find it a struggle financially, even if you were ill for only a short period, and you could end up using your savings to pay the bills. In the event that you suffered from a serious illness, medical condition or accident, you could even find that you are never able to return to work.

Few of us could cope financially if we were off work for more than six to nine months. Income protection insurance provides a tax-free monthly income for as long as required, up to retirement age, should you be unable to work due to long-term sickness or injury.

Profiting from misfortune

Income protection insurance aims to put you back to the position you were in before you were unable to work. It does not allow you to make a profit out of your misfortune. So the maximum amount of income you can replace through insurance is broadly the after-tax earnings you have lost, less an adjustment for state benefits you can claim.

This is typically translated into a percentage of your salary before tax, but the actual amount will depend on the company that provides your cover. It is advisable to talk to your employer about whether they provide this company benefit and to understand the support services available to you.

Self-employment

If you are self-employed, then no work is also likely to mean no income. However, depending on what you do, you may have income coming in from earlier work, even if you are ill for several months. The self-employed can take out individual policies rather than business ones, but you need to ascertain on what basis the insurer will pay out.

A typical basis for payment is your pre-tax share of the gross profit, after deduction of trading expenses, in the 12 months immediately prior to the date of your incapacity. Some policies operate an average over the last three years, as they understand that self-employed people often have a fluctuating income.