Income protection insurance
Nicola Crozier • 28 Apr 2021An income protection policy will pay out a regular tax-free income if you’re unable to work because of an accident or sickness.
What it does
Income protection insurance pays out a regular tax-free income if you become unable to work because of illness, injury or – with certain policies – compulsory redundancy. It could help you keep up with your mortgage repayments or rent, and other day-to-day living costs until you are able to return to work. You can arrange cover to replace a percentage (normally up to 70 per cent) of your lost income until you reach retirement, return to work, or die, whichever happens first. Alternatively, cover can be arranged for a limited period of time, which will result in a cheaper premium. The premium you’ll pay will vary depending on these factors and others such as your age, health, the nature of your job and, of course, the level of income you wish to protect.
Why you might need it
If you become ill or suffer an injury during your working life, an income protection policy can help protect against possible loss of income and give you the peace of mind you need to concentrate on recovery.
Other types of income protection insurance
Payment protection insurance and short term income protection insurance (along with mortgage payment protection insurance and accident, sickness and unemployment insurance) can provide a monthly income if you can’t work due to an accident, illness / injury or, often as an optional extra, unemployment.
There are important differences between these products and income protection insurance, the most notable being that they will only pay a percentage of your income for a limited period of time – usually between 12 and 24 months.
In contrast, income protection insurance will pay out for as long as you are unable to work (up until the policy expires). Shorter payment periods are available from some insurance companies, which reduces the cost of these plans.
