Do I need income protection insurance?

Going to work on a daily basis becomes a habit for most people and very few give serious thought to what would happen if illness or an injury meant they would be unable to earn a living. While households in the UK have a pet insurance policy to prevent being lumbered with expensive veterinary bills, not many have any form of income protection policy, suggesting that the insurance is perceived to be too complex or that people greatly underestimate their chances of being unable to work.

The statistics, however, strongly suggest that an income protection policy should be an absolute essential for anyone who relies upon their job to make ends meet and a large amount of people becoming unable to work each year in the UK as a result of an injury or illness. The chances that you could become a statistic are actually quite high, even if the cause is simply a condition such as back pain, which currently significant effect UK employees from attending work. More people have life insurance than an income protection policy, yet the chances of dying prematurely are minimal in comparison to becoming too ill to work.

What is income protection insurance?

It’s important to realise that income protection insurance is not the same as critical illness cover, which pays a lump sum on diagnosis of one of a number of serious conditions, such as a heart attack, stroke or cancer.

1. Long term income protection insurance
   An income protection policy will help to make up the shortfall in your income if you are unable to work due to illness or injury in the long-term. It will usually continue to pay out until you are well enough to return to work, you retire or die, whichever occurs first.
2. Short term income protection insurance
   Short term income protection insurance is designed to pay out should you be unable to work for a fixed amount of time; this is usually between 6 months to a year.

Once you become unable to work, your policy may not start to pay out until your sickness pay ceases or reduces. The waiting time for payments to commence varies according to your own sickness pay arrangements and the terms of the policy, so it is a good idea to negotiate this aspect of the cover when setting up a policy so that it works in conjunction with your sickness pay, rather than leaving you adrift without money for a period.

Do I need income protection insurance?

The most important question to consider is how you would pay for day-to-day living expenses if your income drastically fell as a result of illness or injury that meant you were unable to work.

While ensuring that your mortgage can be paid is essential to prevent losing the family home, it’s also important to remember that there are a host of other expenses that, if left unpaid, could land you in serious financial trouble during your absence from work. These include council tax, utility bills, school and college fees and repayments on existing borrowing.

If you’re self-employed or your employer offers minimal sickness pay, income protection insurance could throw you a financial lifeline in the event that you’re unable to work. However, it’s also appropriate for employees who have more favourable sickness pay arrangements, as the duration of a serious illness could easily exceed the period during which you will receive full sickness benefits. Remember, you can delay when the first payments under the policy are made, to tie in with your existing arrangements and ensure that you needn’t worry about how you’re going to afford to live once your full sickness pay runs out.

Could I simply rely on my partner’s income instead?

Not necessarily. Even if your partner has a healthy income, transferring all of your financial responsibilities to them could mean you have little in the way of reserves at the end of each month. If an unexpected bill arose, such as an expensive car repair, your partner might not be able to afford to pay for it. Also, you may have to forego some of life’s smaller luxuries if you try to manage on one income, affecting the quality of your life just at a time when you’re more likely to benefit from them.

Income protection insurance is a cost-effective way to protect your livelihood in the event that you become unable to work through ill health or injury, offering you peace of mind that, should the worst case scenario arise, your quality of life and ability to pay for living expenses will be unaffected.

IF THE POLICY HAS NO INVESTMENT ELEMENT THEN IT WILL HAVE NO CASH IN VALUE AT ANY TIME AND WILL CEASE AT THE END OF THE TERM. IF PREMIUMS ARE NOT MAINTAINED, THEN COVER WILL LAPSE.