Income protection pays out a regular tax-free replacement income if you are unable to work because of ill health or an accident; it enables you to pay the mortgage, as well as the daily costs of living.
Income protection policies pay out a set amount of income after a specified period of time. You can elect a waiting period of between a day one policy, or even up to 24-months. The longer you defer, the cheaper the policy becomes due to the insurance company having less risk. It usually then pays out until you either return to work, retire, the policy expires, or death.
When should you take out income protection?
Before taking out income protection, check what cover you have through your job, as many companies will offer an element of sick pay.
The level of cover required from income protection varies from person to person, so after finding out what is offered by your employer, calculate your current expenditure and take out cover to meet the shortfall. Also bear in mind how long you get sick pay for, as income protection has a deferred period for paying out and the longer the deferred period, the cheaper the premiums.
If you do decide to take out the insurance, it's a case of the sooner the better, as younger and healthier individuals will be offered cheaper premiums. It's also beneficial to take out a policy before there's any sign of trouble - to ensure you have the necessary cover in place should anything go wrong.
How much benefit can I receive?
DJB Mortgages offer Income Protection from famous UK insurance providers. The maximum level of cover ranges from around 60-65% of the first £30,000 earned income per annum plus 50% of anything above this. No insurance company pays you a full salary whilst you are ill as there will be no incentive to get better and return to work.
The benefit is paid monthly and depending on the agreed terms in your policy, can start paying from between day 1 and week 24 months of making your claim. Our advisors seamlessly blend your work sick pay arrangements with our Income Protection package to drive down the cost of the premium for you. In short, if you are entitled to 6 months sick pay through your employer, we design a policy with a 26 week waiting period so there is neither overlap nor deficits in your protection.
To obtain the right Income Protection tailored for your circumstances, contact us right away and we will arrange a consultation and make sure you get the best advice for you circumstances.
What affects the cost?
The cost of the policy will be calculated depending on your individual circumstances such as your age, amount of income you want to replace, lifestyle (for example, if you’ve ever smoked/how many units of alcohol you consume each week, and so on), and your health (including any present or past medical conditions that you or your family have or had). From there, it gets more policy specific such as the length of time you want to receive payments and the ‘waiting period’ between your falling ill and when payments begin.
What about inflation?
Inflation is a major part when considering income protection as you want to make sure that you are protecting your benefit amount against the potential rise in inflation, such as the cost of goods etc. For this reason, many insurers will offer you a choice of either index-linking your policy or allowing a certain percentage increase each year of the cover, this making sure your amount of benefit keeps up with the cost of living.