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Income protection insurance: do I need it?
Income protection insurance covers you if you have to stop working due to an injury or illness as it will pay you an income until you get back on your feet or it can help you make plans to deal with stopping work for good if you can no longer work due to your injury or diagnosis.
Income protection can be a useful tool to safeguard for the future for yourself and your family so you can still afford to pay bills if you have to stop working for a set time or for good. So although it can be beneficial, do you actually need it?
How do I get it?
Whether you work full-time, part-time or are self-employed, you can sign up for an income protection insurance policy at any time. There are plenty of providers of this type of insurance on the market so you can easily compare them all to find yourself the best deal. Usually providers of pensions, health or life insurance are the companies who offer income protection insurance policies.
Why do I need it?
You don’t need income protection but it is definitely something you should consider especially if you would not be able to afford to replace your income should you find yourself out of work for a significant period of time.
When looking for income protection insurance, you will need to think about how long you’d ideally want the policy to pay you an income and how much of your current income you would like covered. Many income protection insurance providers allow you to specify an amount or a percentage of your current income which you would like covered and paid out to you should you need to claim.
Ideally, you should work out your household outgoings and transfer that into a percentage of your current income. This way you will make sure that you receive enough of your current income to allow you to continue paying your outgoings should you need to stop working.
How much does it cost and what does it cover?
The cost of your income protection insurance policy depends on a number of factors including your age, your health (from a medical questionnaire that you will need to complete), the income you will need, the length of your cover and whether you would like a deferred period or not.
A deferred period is the time between making a claim and when you get the income paid to you. Usually a deferred period will last six or twelve months but it can last longer in some cases. The best thing for you to do is to ask your employer how long they would pay you for if you could not work due to an illness or injury.
If they say that they would pay you for a year then it is worth your while opting for a deferred period of 12 months. This will provide you with an income if you cannot return to work after the 12 months and in some cases, it can also mean cheaper premiums than a policy which pays out straightaway.
Income protection insurance covers you if you have an accident, become unexpectedly unemployed or receive a diagnosis which means you will be unable to work for a while or for good.
When does the cover pay out?
There are two options when deciding when you want your cover to pay out, it can pay out straight after claiming or after a set period. If you opt to be paid straight after claiming then you will receive an income paid as soon as you are unable to work but this can be more expensive in monthly payments.
If you opt to defer payments until after a set period of time then you will have to wait until that time is over before you will be paid. This is usually the cheaper option in terms of your monthly payments but would only be advisable if your employer is willing to pay you for a set amount of time should you fall ill or become injured.
To find out more information about income protection insurance, get in touch with an independent financial adviser (IFA) or an insurance provider. You can also find out more information on this article from Money.co.uk.