What is income protection insurance and how does it work?

Content created by Macbeth Financial Services Ltd.

What is income protection insurance and how does it work?

With living costs continuing to rise, many of us can’t afford to be unwell, or suffering in the future from a long-term illness or injury. Now more than ever we are at risk of these different ailments and accidents, so what can we do to protect ourselves?

One solution is to invest in income protection insurance. Historically, this hasn’t proved to be popular in comparison to life and critical illness insurance. But, from the financial damage caused by the pandemic, the uptake levels of income protection cover are on the rise. Research conducted by LV= found that nearly half of 25-44 year-olds were considering taking out cover to safeguard their income and saving.

What is income protection?

Income protection insurance minimises the impact of an injury or illness on your family and gives you a regular income when you can’t work. It’s great as a backup, and essential if you’re self-employed and don’t get statutory sick pay.

How does it work?

Income protection insurance pays a regular monthly benefit if you’re unable to work due to illness or injury, replacing up to 80% of your income, including P11D benefits and dividends in some cases. You’ll pay a monthly or annual premium, and the level of cover should reflect your essential outgoings.

Key points to consider:

• Premiums depend on your health, job, and the policy’s terms.

• Cover types include short-term (fixed period) and long-term (until recovery or retirement).

• Payments begin after a deferred period and are usually tax-free.

• Policies may exclude pre-existing conditions, so disclose your full medical history.

• You can claim multiple times while the policy is active.

• The insurance does not cover redundancy or voluntary unemployment.

• Policies vary, so read documents carefully and check for any added benefits like wellbeing support.

• Ideal if your employer offers limited sick pay or you’re self-employed.

• Some policies cover your own occupation, while others cover any suited role.

How Macbeth can help

As a fast-growing independent financial advisor, our finger is always on the pulse. We work closely with some of the UK’s most reputable insurers to get the best cover you need, at an affordable price.

We pride ourselves on our quality and personable professional services. To ensure we find the best policy for you, we will sit down with you and get an understanding of your situation, before providing you with tailored personal insurance advice and knowledge you need for your next steps.

To get the advice you need on income protection insurance, contact us today.