Income protection
Income protection insurance, also known as permanent health insurance, can pay out a tax-free income if you are unable to work through illness or disability.
What is it designed to do?
It replaces a portion of your income if you are unable to work for a period of time because of illness or disability, and will continue to pay out until you can return to some kind of paid work or reach your nominated retirement age, whichever is sooner.
It has a waiting period (known as a deferred period) before it will start to pay out. The longer the deferred period, the lower your premiums will be, so it is very important that you find out what income you can get from your employer, and other insurance (such as mortgage payment protection insurance) in the event of illness or disability.
This type cover might not be available to you if you have existing health problems or a dangerous job.
What should I be aware of?
If you are an employee and you become ill, your employer might pay you for an agreed period of time. You are also likely to be eligible for statutory sick pay for up to a maximum of 28 weeks. However, this will more often than not be a lot less than your full earnings. After that, it is likely that you will have to rely on State benefits.
Some employers arrange group income protection insurance for their employees as a perk of their job, which can pay out an income after the statutory sick period. This will normally be detailed in your contract of employment if you have one.
If you are self-employed, you won't have the potential employee benefits of an employed person and therefore you would have to rely on statutory sick pay and then state benefits, should you be eligible.
State benefits are not generous. You would probably see a substantial drop in your income if you were out of work because of illness or disability.
Income Protection Insurance aims to put you back to the position you were in before you suffered a loss. However, it does not allow you to make a profit out of your misfortune. The maximum amount of income you can replace through insurance is generally between 50% and 65% of your before-tax earnings (Gross income).
At Tailored Mortgage Solutions we deal with a panel of insurers that can offer various deferred periods and maximum income benefits, ranging from 1 day deferred to 52 weeks deferred periods. Our panel of insurers includes household names such as Legal & General, Bupa, Friends Life, Scottish Provident, Bright Grey and Exeter Family Friendly.
Contact us today for advice in this area. Once we have assessed your needs we will be happy to provide you with a no obligation illustration.
