Income Protection – A Guide

If you’ve ever worried about how you would pay your bills or your mortgage if you were unable to work through illness or injury, then this article is for you.

Ever heard of Income Protection? No? Then read on…

What is Income Protection?

Income Protection is an insurance policy which pays out a monthly lump sum to the policyholder if they are unable to work through illness or injury.

There are a number of exceptions (such as normal pregnancy and childbirth, self-inflicted injury, war and misuse of alcohol and drugs), but generally speaking, there isn’t really a limit on the illnesses which are covered. You just have to be unable to do your job as a result of it.

How does it help?

Statutory sick pay is currently £96.35 per week, so if you don’t receive sick pay from your employer or you’re self-employed, would the equivalent of a £5000 annual salary or £417 per month be enough to cover your mortgage or rent, utility bills, phone bill, TV package, broadband, etc, etc. It’s unlikely!

Income Protection can provide that much needed financial support to your and your family if you are unable to work by replacing your salary with either a percentage of your monthly income or a fixed amount, less than this, that you feel would be enough to help alleviate that financial pressure.

How much does it cost?

As with other insurance policies, the cost is paid monthly to the insurance provider via a monthly premium. The cost varies from person to person, depending on a number of factors, such as lifestyle (smoking, drinking, height and weight), existing medical conditions, and age.

Other things which affect premiums are the ‘deferred period’, which is the amount of time between a successful claim and the first payout – the longer this is, the cheaper the premium; the ‘benefit amount’, which is the monthly amount you receive – the less you need, the cheaper the premium; and the ‘payout period’, which the amount of time you receive the monthly amount – either 12 months, 2 years, or for the full term of the policy (usually till retirement). The shorter the payout period, the cheaper the premium.  

When do I get the payout?

It’s important to contact your insurance provider as soon as you are unable to work. As long as you have been completely honest on your application and the illness you have been diagnosed with is covered by your policy, then there should be no issues with your claim.

The monthly payment is then paid into your nominated bank account for however long your payout period is, or until you return to work. If you return to work on reduced hours as a result of your illness, then some policies will continue to pay a reduced amount when you return.

Here at Stonebrook Mortgages, we offer advice on a number of different personal protection (or insurance) policies, such as Life Insurance, Critical Illness Cover, Income Protection and Family Income Benefit.

You don’t have to be reviewing or applying for a mortgage with us either. We can review your circumstances and/or current insurance policies, and provide you with a bespoke recommendation for you and your family.

At Stonebrook Mortgages, we want to make sure you and your family are provided for, no matter what. We have appointments available face-to-face or via Zoom so why not contact us today to discuss your protection needs and receive your bespoke recommendation?