Income protection insurance can be a life-saver

A NEW year is worth a new look at protecting your income.

This is the type of cover that provides a long-term means of support if you can’t work as a result of illness or injury.

But it is not just a matter of financial support.

It is in the interest of insurers to return you to employment – it saves them money and you are earning again.

So, many provide additional rehabilitation services to this end.

The aim is to aid a client’s recovery when they have suffered a debilitating injury or illness.

The types of treatments include: Occupational therapy – Assessment and treatment to develop, recover, or maintain the daily living and work skills of people with a physical, mental, or cognitive disorder.

Physiotherapy – To restore movement and function when someone is affected by injury, illness or disability.

Complementary therapies – Remedies which are used alongside prescribed medical treatments to help people with severe illnesses or injuries feel better and improve their quality of life.

According to the Government’s Money Advice Service, quoting the Association of British Insurers, each year one million people in the UK find themselves unable to work due to a serious illness or injury. If something happened to you would you be able to survive on savings, or on sick pay from work? If not, you’ll need some other way to keep paying the bills and you might want to consider income protection insurance.

It ensures you continue to receive a regular income, typically up to 75 per cent of your normal pay.

It’s not the same as critical illness insurance, which pays out a one-off lump sum if you have a specific serious illness.

How popular, then, is income protection insurance?

Purely as an example, in 2018

Liverpool Victoria paid out a total of £14.3 million on income protection claims, averaging £1,221 per month. But there are downsides.

If you are in a high-risk occupation or environment, the chances are you will be charged more for cover as you are statistically more likely to need a pay-out. Smoking may increase your premiums as it is linked to increased risk of other illnesses.

Most income protection insurance policies have a waiting period of around 60-90 days. Policy exclusions apply – if you were involved in illegal activities or were using drugs or alcohol, you may also not be covered.

You might not need protection insurance if you have an employee benefits package which gives you an income for 12 months or more; you could survive on government benefits; you have enough savings to support yourself; you could take early retirement; or your partner has sufficient to cover everything the two of you need.

Conversely it can be a “life-saver” for some, such as small business owners. If you run your own company, income protection insurance may be a great investment, as your business can easily be put at risk by an unexpected illness or injury preventing you from working.

How much does income protection insurance cost?

It will depend on the policy and your circumstances – age, job, whether you smoke or have previously smoked, the percentage of income you’d like to cover, the waiting period before the policy pays out, the range of illnesses and injuries covered, plus your current health, your weight, and your family medical history.

So check it out – an independent financial adviser can offer guidance.

If you never have cause to claim then it can seem like money wasted. But if you turn out to be one of the unfortunate ones it could be one of the best decisions you ever made.

Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners,

based in Solihull. Email: tlaw@eastcotewealth.co.uk The views expressed in this article should not be construed as financial advice