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Choosing an Income Protection Policy
The first question you should ask yourself when considering an Income Protection policy is what will happen should you be unable to work?
Will you be able to pay for your mortgage, household bills and maintain your lifestyle, for example holidays or eating-out?
Insurance companies will usually offer a range of different options. The premium of a policy is likely to be an important consideration. Generally, the broader the scope of the cover, the greater the cost.
Choose how long to wait before your benefit becomes payable
You can usually choose from a range of deferred periods. You will probably wish to match this to your personal circumstances. For example if your employer will pay you for six months, the benefit from your Income Protection policy starts after that time.
Choose how long you wish your cover to last
This is the maximum period for which benefit will be paid if you are too ill to work.
Choose if the premium you pay should be fixed or could change
Guaranteed Rates - the amount you pay is fixed in advance. This premium cannot be changed by your insurer, except in agreed circumstances (i.e to rise in line with inflation).
Reviewable Rates - your insurer can change the amount it charges you in the light of factors such as policy lapses, interest rate changes and overall claims experience etc. This rate does not depend on individual claims that you have made.
Your occupation and your medical history
Your Income Protection policy will be underwritten based on the risk that you pose. During the underwriting process your occupation, your medical history and any dangerous sports or past times that you undertake will be considered. You or your GP may be asked to provide information on any past or current medical conditions.
Consider your income
Employed
If you are employed your employer may continue to pay you for a limited time or only pay Statutory Sick Pay. Check what arrangements your employer has made.
Self-Employed
If you are self-employed your business may continue to generate income in the short term, however, your long term earnings are likely to be effected.
State benefits
Long term you may receive benefits from the State. However, this is likely to mean a substantial reduction in your income?
Savings and Investments
Savings may be able to provide you with an income, including cashing in any investments, but how long will these last and by being forced to sell you may not always get the best price?
Pension payments
If you are receiving a pension from a previous job this is should continue regardless of your incapacity to work.
Early retirement
You may be able to start receiving an early retirement pension.
Alternative employment
If you are unable to undertake your usual work, there could be alternative work that you could do.
Consider your outgoings
House costs
Mortgage or rent payments.
Ongoing bills
Household bills such as Council tax, gas, electricity, food and also personal expenses such as credit card or loan repayments.
Work-related costs
Some expenses may reduce, or even be eliminated such as the cost of travelling to and from your place of work.
New costs
Some expenses will increase, or will be incurred for the first timesuch as the cost of heating your home all day if you do not go out to work and the cost of medicines and
possibly nursing care.
Be wary of buying income protection from a bank as the majority of banks are tied to a single provider, so you just get their branded deal.
Income protection is not payment protection. Payment protection insurance covers the repayments on a mortgage, loan or credit card if you are unable to work due to accident, sickness or unemployment.
Income protection is not critical illness insurance. Critical Illness insurance pays out a lump sum if you suffer one of a number of specific medical problems, such as a heart attack, cancer or stroke.
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Premier Healthcare Direct Ltd is regulated in the United Kingdom by the Financial Services Authority. Our regulated Firm number is 300707. Full details can be found on the FSA Register |
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