There’s no doubt that in certain circumstances income protection can be a huge benefit, helping to release the financial shackles of those who are unable to work due to an accident or serious illness. However, every individual’s personal circumstances are unique, making it impossible to adopt a cookie cutter approach to this type of cover. Let’s have a look at the important considerations when deciding whether income protection insurance represents good value for you.
First things first, what is income protection insurance?
Income protection insurance is a long-term insurance policy which provides financial support if you are unable to work due to sickness or injury. This financial support manifests in the following forms:
It provides you with a regular income during the period you are unable to work;
It pays out a regular income until a time when you can return to work, you retire or the policy expires;
Income protection insurance policies include a waiting period before payments start, which people generally set to coincide with the end of their sick pay. Generally, the longer the delay, the lower your premiums.
Do you need income protection insurance?
As a simple rule, if an illness or accident would leave you unable to pay your bills, income protection insurance is something you should seriously consider.
Most commonly, individuals who are either self-employed or are employed but do not have sick pay to fall back on invest in income protection insurance. However, it is essential to set the premiums at a manageable level, offering the right balance between your current budget and the peace of mind income protection provides.
Income protection insurance may not be required if…
You could afford to live on sick pay alone – some employees have a benefits package which includes an income for six months or more if you are unable to work due to long term ill-health. This can help you to meet the cost of essential expenses such as mortgage repayments and bills;
You could survive on government benefits – government benefits will only provide a very small income, but if it’s enough to survive on then you probably don’t need income protection insurance as well;
You have substantial savings – if you have savings which are large enough to see you through a prolonged period without work;
You can retire early – If you are nearing retirement age then you may be entitled to take an early retirement and receive your pension sooner;
Your family can support – if you have a family who are willing are able to support you during this period.
As stated previously, individual circumstances differ greatly, so the above should be seen as a guide to help you think seriously about income protection insurance and not a definitive set of rules.