As most individuals rely on their income for day to day living expenses, an extended absence from work due to ill health or injury could prove financially devastating and the uncertainty of state benefits to help through these down times could prove increasingly insufficient for many, leaving them financially unable to cope. Income protection insurance could play a vital role in keeping you financially secure while you are unable to work.
Income Protection, also known as permanent health insurance, is a long-term insurance policy designed to support you and your loved ones if you can’t work due to ill health or injury. It will usually pay premiums to the insured until retirement, death or your return to work, however it is unlikely that these policies will ‘pay out’ in the event of redundancy.
On ill health or injury, rendering the insured unable to work, these policies will usually pay a proportion of your earnings, generally in percentage terms of around 50% or 70% and payments made are free of taxes.
Income Protection policies will usually only pay premium claims to the insured once a pre-agreed period has passed. This will generally range from one month to twelve months after the insured places a claim, however the longer the ‘deferral’ period chosen at outset of the policy, the lower the premiums will generally be. As default, the ‘deferral’ period tends to be thirteen or twenty six weeks.
Data sources suggest that around just 12% of employers support their staff through periods of ill health for more than one year and therefore cover for extended periods of ill health may not prove sufficient for many employees.
As income will generally be deemed essential for day to day living, income protection insurance policies could prove essential should you fall ill, or become injured, rendering you incapable of working.