If you had a money-making machine, would you insure it? I imagine your answer is yes- after all, you would be daft not to! But money making machines don’t exist right? Wrong! You are a money-making machine, and if you get ill or have an accident then your income will stop coming in. Income protection insurance will replace part of your salary if you are unable to work, but few people actually invest in a policy. Here we look at this type of insurance and help you decide whether you should take it out.
So what is income protection insurance?
Income protection insurance is a type of policy that will pay you up to 70% of your monthly income if you cannot work because of accident or illness. This means you do not have to rely on state benefits or your savings if you are out of work for a long period of time.
How does it work?
If you are unable to work because you get ill or are involved in an accident, income protection will begin to pay out a monthly sum, which is tax free. Income protection policies can be designed to pay out for just 12 months, or up until retirement age if needed.
How can I use the money?
You can use the money however you wish, but most people choose to meet the costs of their mortgage repayments or other debts, to prevent losing their house or other possessions. The money can also be used in the same way you use your income- to pay for food, car insurance or school fees for example.
How much does income protection cost?
The cost of a policy will vary hugely depending on each individual person. If you choose to cover a large portion of your income your premiums may be higher, and if you want your policy to be able to pay out until retirement you may pay more than a short term policy. In addition your age, whether you smoke and even your occupation can all have an effect on the price.
What about cover for redundancy?
There are policies called accident, sickness and unemployment insurance which are designed to cover you against redundancy as well as falling ill. These policies will only pay out for a maximum of 12 months even if you cannot go back to work or have not found another job in this time. Redundancy insurance can also be bought as a separate policy altogether, but this is often a more expensive option.
Are there exclusions?
As with all insurance your income protection policy will have exclusions on it. Typical examples include dangerous sports and occupations, conditions due to drug or alcohol abuse, and deliberate self-injury.
In addition, your policy will probably exclude any pre-existing medical conditions you have suffered from. This is to prevent people taking out a policy simply to claim on it straight away.
Could I take out a policy?
To be eligible for income protection insurance you usually have to be over the age of 18, having a job for a minimum number of months, and employed more than 16 hours a week in permanent employment.
You can see that income protection insurance can be an excellent investment, but as with most types of insurance it is better to take out a policy BEFORE you need it, as a safeguard for the future. So insure your money making machine now!