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 supports you financially if you become unable to work. The insurance covers most injuries and illnesses in both short and long term circumstances, substituting part of your income until you can return to work. Having income protection cover can relieve a lot of stress you may have around your finances, allowing you to focus on recuperating.

If you don’t currently have income protection or any other similar cover, you run the risk of being unable to keep up with daily costs such as mortgages, household bills or other insurances, should an accident or illness occur. The risk varies for each person, but you can completely eliminate any risk with income protection cover.

Many people decide to take income protection cover as a backup, particularly those who are self-employed and don’t have access to sick pay, or who have a limited amount of savings to cover any payment gaps.

How does it work?

If you decide to take out income protection cover, you will be paying a monthly or annual premium to receive regular payments that can replace up 80% of your taxable income and in some cases this can include P11d benefits and dividends should you become unwell or injured. Other details you should be aware of include:

• Premiums are determined by your policy and individual circumstances
• Protection policies can be short or long-term cover – short-term will pay out for a fixed amount of time you agree on, while long-term cover will pay out until you are well again, or the policy ends
• You can claim as many times as you need whilst you have the policy
• Income protection insurance will cover most illnesses that leave you unable to work – it does not cover redundancy, resignation or unemployment
• It can provide more longer-term protection if your company doesn’t offer sufficient sick pay for your circumstances, or if you are self-employed
• The insurance can include extra support to aid in your recovery, including utilising rehabilitation services

Before taking the leap and investing in an income protection policy, there are some questions to consider:

• If you’re employed, do you have sick pay to fall back on? Will any funds available be sufficient to cover you for a period, or is an insurance policy a better option?
• Can you afford the premiums of the cover level you need? Make sure you’re getting cover that’s affordable. But also ensure your policy covers you completely when you need it the most.
• Is income protection insurance the right type of cover for you? If you’re unsure, take a look at some other personal protection cover options available to you

Income protection insurance will save you from many worries should you be unable to work at any point in your working life, and you don’t have to spend a fortune to reap the protection benefits. You never know what’s around the corner, so get in contact with us today to find the best financial security for you.

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.