Income Protection is still a relatively rare product in many people’s financial portfolio, even though it covers far and away your biggest asset, your income. Maybe the reason is because it is a discretionary purchase. Unlike car insurance for example, you are not required to have it by law. So it has to compete with all of the other financial expenses in your life… and can be mistakenly considered less important.
Paying for income protection is certainly not the most enjoyable use of your money, but without your income, everything is at risk; holidays, your lifestyle, your mortgage repayments, the lot. It's your income that keeps all of these going for you.
So what is it? Income protection provides a replacement income should you become unable to work due to illness or accident. There are a few features that are well worth considering.
The premiums paid for income protection policies qualify for tax relief at your marginal rate of tax. Unlike health insurance and other tax breaks that only get relief at the lower 20% rate, income protection (like pensions) attracts relief at your highest rate. This can reduce the actual cost by over 40%.
You can align it with other entitlements
You may already have some sick pay benefits from your employment that kick in immediately when you are unable to work, and usually lasts for a set number of weeks. The payment of income protection benefit begins after a deferred period (waiting period), usually anything from 13 weeks to a year from the date you are first out of work. The longer the waiting period, the cheaper the cover is. So it makes sense to take account of any sick pay that you might get in the short-term.
It’s all about paying claims
Once benefit payments begins, they continue until you are able to return to work or until the expiry date of your policy, which often may be up to age 60 or 65. Indeed if you are able to return to work part-time, the insurance provider may help you with this and will often agree to continuing to pay you a lower level of benefit, to help you transition back to work.
We look at cost too
Apart from your benefit levels and duration of cover other important cost factors include your age, state of health and your occupation. We can arrange either a guaranteed payments amount or a reviewable payment amount that might increase over the years. While guaranteed premiums will look a bit more expensive at the outset, you get certainty that they will never change. It’s a bit like taking a fixed rate mortgage rather than a variable rate.
Your income funds your lifestyle and pays the bills. This needs to be protected. Once you make that decision, we’ll help you put your income protection cover in place.
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