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An Introduction to Sickness & Injury Income Protection Cover
Throughout life we take out many different types of insurance, covering our home, car, mortgage and even our lives, but many people often overlook covering the one thing that pays for all of those other insurances, our income.
How long could you survive without your income?
The majority of people would be able to manage should they have to take one or two months off work due to illness or injury. For example, we could rely on our savings or even seek support from our partner or other family members. Some employers even provide a few months full sick pay. However, the vast majority of us would struggle if we lost our incomes for a much longer period, such as a year or even longer.
Fortunately, there are insurance plans that can be taken out in order to cover this very risk. Personal income protection is a type of insurance designed to provide a monthly benefit to cover lost earnings should you have to take time off work due to sickness or injury. Some plans can even last until age 65 so as to cover earnings until retirement. This means that if you were off work recovering from cancer, say, the plan could payout every month until you were well enough to return to work, however long that may be.
How much of my income can I protect?
With income protection cover (sometimes known as permanent health insurance) it is usually possible to insure up to 65 per cent of gross earnings and plans can usually protect against practically any medical condition that prevents you from working. With ‘own occupation’ income protection the plan would cover you in your own job and the insurer would never ask you to undertake any other type of work, even if you were well enough do so.
What support can I expect from the government?
Many people assume that the welfare state will fully provide for them should they suffer long-term illness. In reality, state support, in the form of the Employment and Support Allowance (ESA), is very limited in terms of the benefit provided, with weekly rates ranging from £91.40 to £96.85 (as of February 2011). ESA also comes with strict Work Capability Assessments in order to obtain the benefit in the first place. In this light, taking out private insurance is the only real means of gaining sufficient earnings protection.
Where can I take out an income protection policy?
Although the concept of protecting your earnings is quite straight forward there are a number of important factors to consider, many of which can vary considerably from insurer to insurer. As such, it is usually best to speak to an expert in the field, with Drewberry Insurance being one such adviser in the area. Whether it is discussing occupation definitions, indexation or finding the most appropriate insurer given past medical conditions an independent adviser can help.
Can I take out a plan if I am self employed?
Given self employed individuals do not have the safety net of company sick pay to rely on many insurers provide various self employed sickness insurance options.
For the self employed extra care needs to be taken when calculating the level of income that can be protected, this will vary depending on whether the individual is a sole trader or the director of a limited company. For this latter group it is also important to consider the weigh-up between a personal income protection plan and an executive plan as there are some key differences in how they are structured and taxed.
In either case, whether employed or self-employed, income protection insurance forms a solid means of earnings protection against one of the largest risks we all face in life, long-term sickness or injury.
Published: 02/03/2011
The information in this article was correct at the time of publication and contains time sensitive data and links, it may not be accurate at the time of reading.