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Income insurance

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Do you sometimes wonder if you should plan for if you or your partner were unable to work for a while? There’s always the worry of redundancy, or worse, one of you could become unwell or injured in an accident which would mean that you couldn’t work.

It’s not a nice thing to think about, but it’s important, especially if you’re paying a mortgage, loan or other debts, or have children to support.

Even if you have some savings set aside, these could disappear quite quickly once they are being used to pay for your monthly outgoings, food shopping and transport costs.

That’s why some people choose to buy income protection insurance (often called permanent health insurance although not to be confused with health insurance, which covers the cost of private medical care). Income protection insurance primarily covers accident or sickness but often there is the option to include redundancy cover. Also called unemployment insurance. This type of policy generally provides cover for the long term, often a retirement date although there is another type of policy There’s also an extended version of this called accident, sickness and unemployment cover. (not be confused with health insurance, which covers the cost of private medical care) Accident, Sickness and Unemployment cover will often just provide cover for a shorter period, normally one or two years.

Here’s how it works.

If you have bought an income protection insurance policy and you lose your job, you will be paid a tax-free monthly income, which starts after a pre-agreed waiting period. This is sometimes often called the deferred period. The longer this period is, the lower your premium, so it’s worth working out how much redundancy pay you could potentially receive from work, to see how long you could last before the insurance would be needed.

If you have chosen accident, sickness and unemployment cover, you are likely to have higher monthly payments, but you will receive a payout if you have an accident or an illness that means you are unable to work for a certain period of time. Again there is a waiting period with this kind of policy.

With income protection, you can choose to protect up to 70% of your monthly pay or you can just cover your mortgage, loan or debt repayments.

If you work for an employer, you may already have some cover against accidents and illness. If you’re self-employed you won’t have this kind of back-up, so this policy might be very important for you.

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