WHICH Guide To Income protection- How IP works
Income protection will cover you if you are unable to work due to accident or illness. Millions of us have policies like critical illness, private medical insurance and payment protection, sold to us over the years by salespeople who convinced us we needed protecting. However, whilst they were right about the protection, they were wrong about the policies. The one protection policy every working adult in theUKdoes need is the very one most of us don’t have – income protection (IP).
What is IP?
IP is an insurance policy which provides you with a regular tax-free income if you can’t work because of illness or disability. The benefit paid is up to a maximum percentage of your earnings – often 50% or 60%. Policies pay out after you have been off work for a period of time known as the ‘deferred period’, and will continue to pay out until you can get back to work or until the end of the policy term – usually retirement.
You can choose a deferred period of four, 13, 26 or 52 weeks, depending on how long you may be able to survive on any savings or how long you receive sick pay from your employer. The longer the deferred period, the lower the cost – for example, with some policies a four week period would cost more than twice as much a month than a 26 week deferred period.
Do I really need it?
Ask yourself the following questions. If your answer is no to all three, then you need some form of IP: Will your employer continue to pay you a percentage of your salary indefinitely if you are off sick? If not, and you are part of a couple, could you pay all the bills and live on your partner’s income indefinitely? If not (or you are single) do you have savings you could live off indefinitely?Remember: Illness, accident or disability can happen to anyone. Currently 2.2 million people of working age will be off work for at least six months because of sickness and disability, and more than 2.6 million people are claiming incapacity benefit.