Protecting your finances with income protection insurance

Do you need income protection insurance? Getting made involuntarily redundant; suffering from an extended illness; or having an accident that keeps us away from work for a prolonged period can have a huge impact on us, both emotionally and financially.

With an income payment protection insurance plan, you can have a safe guard in place that will help protect you at least financially in the event that you are unable to work for a short period of time.

What does the cover do?

This policy will typically provide a tax free monthly amount to help you meet costs during your period of involuntary redundancy or recovery.

It is designed to provide short term relief in the event of you being unable to work due to accident, sickness or unemployment. That is why you may also hear it referred to as ASU insurance.

How much will I receive?

There are a number of income protection insurance plans available, and the policy features and benefits do vary – as well as the cost! However, as a rough guide, you can expect to insure around 50% of your gross earned income or up to £1,500 a month – whichever amount is the lesser. For most people, this will be a welcome amount at a particularly financially distressing time.

This income can be used for whatever purpose you wish, whether it be for rent or mortgage payments or for groceries and general living costs.

When will benefits start to pay out?

Benefits from your payment protection insurance plan will usually start to pay out after 30 days of you being unable to work – though with some providers you may have a 60 or 90 day wait after your first day of unemployment or incapacity before you can claim, so do check the policy terms and conditions.

Income protection insurance or income payment protection insurance?

Finally, as with all things financial, make sure that you choose the most suitable product for you. There is often confusion between income payment protection insurance and income protection insurance. The names are often used interchangeably, but both offer different benefits.

One offers financial protection in the case of long term incapacity (and not unemployment). So, it could pay out for a number of years. This type of cover tends to cost a lot more and will normally require that you complete a medical questionnaire when you apply for cover.

The other – which we have been discussing within the article – is designed to be a short term solution in case of accident, illness or unemployment. It will usually pay out for up to 12 months, though some policies will pay out for up to 24 months, or when you get back to work, whatever is sooner. This protection insurance policy will not be suitable for you if you are looking to protect yourself financially for long term incapacity, so do bear this in mind to ensure you choose the most suitable income protection insurance cover for you.