What is Income Protection insurance?
Income protection insurance pays you a regular income if you can’t work because of sickness or disability and continues until you return to paid work or you retire. Income protection insurance is also known as permanent health insurance. The amount of income you are allowed to claim will not replace the exact amount of money you were earning before you had to stop work. You can expect to receive about a half to two-thirds of your earnings before tax from your normal job. This is because some money will be taken off for the state benefits you can claim, and also the income you get from the policy is tax free. You can’t claim income protection payments straightaway if you fall ill or become disabled. You usually have to wait a minimum of four weeks but payments can start up to two years after you stop work. This is because you may not need the money straightaway as you may get sick pay from your employer or you may be able to claim statutory sick pay for up to 28 weeks after you stop work. There are other types of illness insurance you can take out such as critical illness insurance. You should compare income protection insurance with other types of illness insurance before you decide whether to buy it. For more information about these, see Further help and information.
For more information about employer’s sick pay, see Illness insurance.
For more information about statutory sick pay, see Benefits for people who are sick or disabled.
What you need to think about before you take out income protection insurance
Before you think about taking out income protection insurance, ask yourself the following questions:
Do I really need income protection insurance?
Check that you don’t already get income protection insurance through work. Some employers offer this as a benefit. Your employment contract, handbook or personnel department will have details if this is the case whether you have some other kind of illness insurance combined with another insurance policy or with your mortgage which covers you for serious illness whether you have savings you can use instead of insurance. However, you need to think very carefully about whether you want to rely on savings. You may not be able to save enough to cover a long period of ill-health. And you may face another emergency, which would use up your savings and leave you with no cover for illness.
Is this the best type of illness insurance for me?
Check out all the different types of illness insurance to see which one would suit you best. For example, if you’re worried about the cost of income protection insurance, you could think about taking out critical illness insurance instead which can be a much cheaper option. However, critical illness only covers a very limited range of illnesses and for a shorter period of time than income protection insurance.
If you’re not sure which type of illness insurance would be best for you, you can help from an independent financial adviser.
For more information about critical illness insurance, see Critical illness insurance.
For more information about getting financial advice, see Getting financial advice.
Do you have enough money to pay for illness insurance?
The costs (or premiums) of payment protection insurance can be high and you may never need to use it. You won’t get any money back if you never make a claim.