In my last few articles (which you can find here) we have been discussing life insurance, which is a lump sum of money in the event of your untimely death. In this article I am going to discuss what is known as ‘Income Protection’ and simply put this is a monthly payment of income that can be made available to you in the event that you are unable to work due to ill-health or injury.
Now, I appreciate many of us work for generous employers who in the event of short-term illness will still maintain our salary for a week or two. Indeed in the event of breaking a leg from playing rugby, your employer might also support you for a month or two where they can see a return to the workplace. On the flip side of this, ‘income protection’ protects you from the longer-term serious illnesses or injuries that we might suffer from.
Typically you can insure your salary for approximately two thirds of your normal gross income, this will never be to the same level as your normal net take home pay, because if that was the case there wouldn’t be a financial incentive to return to work! But in the event that you are unable to work you would receive this income benefit on a monthly basis until the point you were able to return to work.
The way these policies are set up is firstly you choose a level of income cover to suit your needs, and you then decide on what is referred to as the ‘deferred period’.
The deferred period is the waiting time before payments will be made to you, for example you can choose a deferred period of four, eight, twelve, twenty-six weeks or even a year.
You select your deferred period to complement any workplace benefits. For example if your employer offered full pay for six months before you received statutory sick pay, you would select a deferred period of 26 weeks so that your claim for income would commence after that period.
The next choice on the policy is the end date, so typically you would select your normal retirement date so that in the event you were ill in say your 50s the policy would continue to pay out until you are 67.
Income protection plans offer great value to clients, although many clients look at life cover, to replace their income in the event of death to protect their loved ones, protecting income in the event of ill health or injury is often overlooked.