Income Protection Insurance
What is it?
Income Protection Insurance, is designed to provide you with a tax free income if you are unable to work due to an accident or illness. This insurance allows you to concentrate on getting better rather than worrying about how you are going to pay your bills.
You can generally cover up to 60% of your current income, although this does vary between insurers. Some insurers also link their payments to the Retail Prices Index, keeping pace with the true cost of living.
What’s covered?
Insurance companies will ask you which definition of incapacity you require. The most common are:
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Own occupation - covering you if your accident or illness prevents you from carrying out your own occupation;
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Any suited occupation - covering you if your accident or illness prevents you from carrying out your own occupation and any other occupation specified by the insurance company;
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Any occupation – only covering you if your accident or illness prevents you from carrying out any occupation whatsoever;
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Activities of daily living – only covering you if your accident or illness means you are unable to carry out a selection of everyday tasks, such as washing and dressing yourself;
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Activities of daily working or personal capability assessment – only covering you if your accident or illness means you are unable to carry out a selection of work-related tasks, such as walking, communicating and working with your hands.
Things to watch for
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The premium for Income Protection Insurance depends on your current state of health and medical history, age, sex, occupation, level of incapacity you choose and your chosen deferred period.
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The deferred period is the number of weeks you can manage before you need the income payments from the policy to kick in. Usual deferred periods you can choose from are 4, 8, 13, 26, 52, or, with some providers, longer If, for example, your employer pays you sick pay for 13 weeks, you could pick a deferred period of 13 weeks, meaning your income payments from the policy will start once your employer’s sick pay has stopped. The longer the deferred period you choose, the cheaper this insurance is.
Remember
An Income Protection Insurance policy will start to pay out after the agreed deferred period. These payments will then not stop until you are either:
During the policy term, there are usually no limits on the number of claims you can make.
Other Benefits
In addition to the main benefit some policies will also include provision for proportionate and rehabilitation benefits.
Proportionate benefit, where offered, means that if the nature of your incapacity allows you to take up an alternative occupation, but you cannot earn the same level of income, the policy will pay out a reduced amount on top of your new salary.
Rehabilitation benefit is an income payment that helps you if you do return to your main occupation, but earn less as a result of your incapacity. This is generally restricted to a short term, such as 24 months, after which payment will stop.
The terms of both of these benefits, if they are offered at all will vary between policies and insurers.
If you need more help deciphering the complex exclusions and differences in cover, seek some advice and contact us today.
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