Income Protection Insurance Explained

Income Protection Insurance should be better described as Income Replacement Insurance in that it is designed to replace lost income if you are unable to work medium and long term due to illness or injury.  It is also sometimes known (in older finance circles as Permanent Health Insurance PHI).

How long could you survive financially if your income fell to £116.75 per week?

Statutory sick pay (SSP) is paid by your employer and not the Department for Work and Pensions (DWP) as many may still think.  It is a legal requirement for employers to pay you from day 4 of sickness if you are unable to work.  Smaller employers may be able to reclaim this from the government.  SSP is currently £116.75 per week, that’s not even £500pm.

SSP is payable by your employer for a maximum of 28 weeks.

After that, you may then be able to claim Employment and Support Allowance or Universal Credit.  Either way, it is unlikely to cover your costs.

• How will you pay your mortgage or rent?
• How will you feed and clothe yourself or your family?
• How will you heat the home?
• How will you pay your TV licence?
• How will you pay for/feed your dog?
• How will you pay your insurances for your home, your car, your life?
• How will you save in pensions?
• Will you lose your home?

Income Replacement Insurance

• Available from many insurers.
• Usually covered up to a maximum of 60-65% of your gross income.  You will not get cover higher than this as some people may be discouraged from returning to work if they were getting 100% of their pay as a sickness benefit.
• You can control your premiums by having cover that does not pay out until 1 month, 3 months, 6 months, or 12 months of sickness.  This is known as the Deferred Period and the longer the deferred period, the cheaper the premiums.
• Short, medium or long term cover: You can also control costs by having cover that only pays out for up to 1 year, 2 years or more expensive cover that can pay out until a specific age e.g.  age 60 or 65.  This may offer peace of mind that you can either have short term cover to get you over any initial sickness money worries or longer term with your bills covered if you were long term sick until you reach your 60s and can access your pensions.
• You can also control premiums by selecting level payment cover or opt for cover that increases each year e.g.  with inflation.

Who Needs Income Replacement Insurance?

If you are working and you have financial responsibilities that cannot be covered by your savings or would exhaust or damage your long-term savings for retirement, then you need insurance.

This is serious matter and if you pay more for motor insurance or your television subscriptions or your online shopping orders than you spend on income replacement insurance email then you are a fool or clearly do not care about your financial security or indeed the welfare of your family.  Even if you can just afford £20 £30 or £50pm then get some income replacement insurance protection.

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