Table of Contents
1. Introduction
2. What is Income Protection Insurance?
3. How Does Income Protection Insurance Work?
4. Types of Income Protection Policies
5. Why You Should Consider Income Protection Insurance
6. Common Myths About Income Protection Insurance
7. The Role of Independent Advisors Like EHF Mortgages
Introduction
In today’s uncertain world, your income is one of the most valuable assets you have. But what happens if you can’t work due to illness or injury? Income protection insurance is designed to provide financial security when life takes an unexpected turn, offering a safety net that ensures you can still meet your financial obligations. In this guide, we’ll explore what income protection insurance is, how it works, and why it could be an essential part of your financial plan.
What is Income Protection Insurance?
Income protection insurance is a type of insurance policy that pays out a regular income if you’re unable to work due to illness or injury. Unlike life insurance, which only pays out when you die, or critical illness insurance, which pays out a lump sum upon diagnosis of certain illnesses, income protection provides a steady income for as long as you’re unable to work.
The income you receive is typically a percentage of your regular salary, usually between 50-70%. The payments continue until you are able to return to work, the policy term ends, or you reach retirement age—whichever comes first.
Income protection insurance is designed to kick in if you become unable to work due to a medical condition or injury. Once you’ve been off work for a certain period—known as the deferral period—your insurer will start paying out a monthly benefit.
How Does Income Protection Insurance Work?
The Deferral Period
The deferral period is the length of time you need to be off work before your policy starts paying out. This can range from as little as four weeks to up to 12 months. Policies with longer deferral periods typically have lower premiums, so it’s important to consider how long you can cover your living expenses before your insurance starts paying out.
How Long Will Payments Last?
Income protection insurance will continue to pay out for as long as you’re unable to work, but the specific terms depend on your policy. Some policies provide coverage until you’re able to return to work, while others may pay out for a maximum of two or five years. The longer the benefit period, the higher the premiums.
Types of Income Protection Policies
There are several types of income protection insurance available, each tailored to meet different needs. Here are the most common options:
1. Short-Term Income Protection
Short-term income protection policies pay out for a set period, typically between one and two years. These policies are often more affordable but may not offer long-term security if you’re facing a prolonged illness or injury.
2. Long-Term Income Protection
Long-term income protection provides a regular income until you’re able to return to work or until the policy term ends. This offers greater financial security but comes with higher premiums.
3. Guaranteed Premium Policies
With a guaranteed premium policy, the cost of your premiums remains the same throughout the term of your policy. This can be beneficial if you want to avoid the risk of rising premiums over time.
4. Reviewable Premium Policies
A reviewable premium policy allows the insurer to review and adjust your premiums, usually every year. While these policies tend to be cheaper initially, the premiums may rise, depending on factors like inflation or changes in your health.
Why You Should Consider Income Protection Insurance
Income protection insurance provides peace of mind that your financial commitments will be covered if you’re unable to work due to illness or injury. Here are some key reasons to consider this type of policy:
1. Protection Against Lost Income: If your salary is the primary source of household income, being unable to work can put your family’s financial future at risk. Income protection ensures that you can continue to meet your mortgage payments, bills, and other essential costs.
2. Covers a Wide Range of Conditions: Unlike some other forms of insurance, income protection covers a broad spectrum of illnesses and injuries that may prevent you from working, from back problems to mental health issues.
3. Long-Term Security: If you’re unable to work for an extended period, income protection can provide much-needed financial security until you’re able to return to work or retire.
4. Flexible and Tailored Policies: Income protection policies can be tailored to meet your individual needs, allowing you to choose the deferral period, length of cover, and benefit amount that works for your situation.
Common Myths About Income Protection Insurance
Despite its many benefits, there are several misconceptions about income protection insurance that prevent people from taking out a policy. Let’s debunk some of the most common myths:
Myth 1: “I Don’t Need Income Protection—The Government Will Cover Me”
While government benefits like Statutory Sick Pay (SSP) are available, they often fall short of covering your full salary. SSP currently pays just £109.40 per week, which may not be enough to cover your essential living expenses.
Myth 2: “I’m Young and Healthy—Income Protection Isn’t for Me”
Illness or injury can strike at any time, regardless of age or health. Income protection insurance is especially important for those whose income supports their family or finances a mortgage.
Myth 3: “It’s Too Expensive”
While income protection premiums can vary depending on factors like age and health, they are often more affordable than people think. By adjusting the policy terms—such as choosing a longer deferral period—you can reduce the cost of your premiums.
Myth 4: “I Don’t Need It – My employer will pay me”
If you re an employee, you may get a level of income protection from your employer as part of your remuneration package. Typically this will have a limited timespan, normally 3-6 months on average but could differ due to time with the company as much as their generosity. When any work benefit ceases, you will only be able to claim Statutory Sick Pay (SSP) as mentioned already, so check how long (and how much) your employers actually do pay for sickness.
The Role of Independent Advisors Like EHF Mortgages
Choosing the right income protection insurance policy can be a complicated process, especially with so many options available. That’s where an independent advisor like EHF Mortgages can help. We provide whole-of-market access, ensuring that you find the best income protection policy for your unique needs.
At EHF Mortgages, we’ll take the time to understand your financial situation, your employment status, and your long-term goals. Whether you’re self-employed, employed, or have other income sources, we can tailor a policy that ensures you’re covered if you’re ever unable to work.
Conclusion and Next Steps
Income protection insurance is an essential safety net that provides financial security when illness or injury prevents you from earning a living. By covering your monthly expenses and financial obligations, it helps ensure that you and your family are protected during difficult times.
Ready to explore your income protection insurance options? Contact EHF Mortgages today to book a consultation and find out how we can help you secure the right policy for your needs.
