Expert Insight: Income Protection
What is it & how can it help?
Income Protection is usually a type of protection policy that many people aren’t aware of or not 100% quite sure what it is. Therefore, we sat down with our Senior Mortgage and Protection Consultant, Andy Dawber to get more information on Income Protection and how it could help you in the future.
What is income protection?
Income protection can provide you with a regular replacement of your income if you were unable to work due to an accident, illness or injury. The majority of people decide to take out income protection because their work only offers statutory sick pay or their work’s sick pay isn’t enough to cover all their monthly bills.
But you’ll receive statutory sick pay so why should I get income protection?
Statutory sick pay (SSP) is £99.35 a week, up to a maximum of 28 weeks. So, with that £400 a month could you pay for your bills?
There are some bills that you will need to pay each month such as your mortgage or rent, water, gas and electric bill, council tax, car finance payments (if applicable) alongside buying food and day to day essentials.
If you were to miss payments such as your mortgage payments, this could affect your credit score and your ability to borrow in the future.
Another point to think about; it’s been 6 months, your SSP is coming to an end and you’re still not able to work, how will you be able to pay for your household bills? Do you have enough savings to keep you going? Is your partner able to cover all the bills by themselves?
How much could you receive each month?
The amount that you’ll receive will depend on how much income you earn and take home each month, you’ll probably receive around about 70% – 80% of your monthly income. However, this can vary between providers, some may provide less or some may provide more.
How long can you receive income protection?
Unlike statutory sick pay, which is capped at 28 weeks, you can receive your income protection payments until you’re well enough to go back to work or choose to retire.
This will be different between providers so you will need to double check what each insurer is offering. Your chosen policy will dictate how long the policy will pay out for. Some products only pay for 12 months or 24 months per absence, whereas other products can pay regardless of the length of time off.
How much does income protection cost?
This will depend on the type of cover that you’re looking for as well as personal circumstances and any existing pre-medical conditions.
For example, a 25-year-old, non-smoker with no pre-medical conditions, you can pay for income protection from as little as £5 per a month.
Do you need to pay tax on income protection payments?
Generally, there is no tax on income protection benefits because as an individual, you would have paid tax on the premiums.
If you’re self-employed and have a self-employed income protection policy or executive income protection plan, you may be able to use your business to pay your premiums – generally out of pre-tax income as an allowable expense against corporation tax.
What sectors/industries do you find take out income protection the most?
From experience, I find that those who are self-employed tend to take out income protection. The main reason why is because if you’re unable to work, you won’t be making money therefore, how are you expected to pay your bills? You also receive no government help for sick pay if you’re self-employed.
I also find that quite a lot of people who work in the private-sector take out income protection, I imagine it’s because they don’t receive any no sick pay or sick pay isn’t enough to cover their monthly bills.
On the flip side of things, I’ve had experience working with Letting Agents who brought awareness to their tenants about their income protection. If a tenant is unable to pay their rent, this will then have a knock-on effect as the landlord won’t be receiving their rental payments and as a letting agent, you may not be receiving their monthly fee.
So, we can assist businesses and bring awareness to their clients/customers about protecting their future which will also benefit the business in the long run.
How does the income protection payments work?
If you need to claim on your income protection, you will receive a percentage of your usual income on a monthly basis.
The process of claiming on your income protection can be quite straightforward, you will need to get in touch with your provider and go through their claim process.
How to claim is usually stated on your policy documents or on their website.
What if I have a health condition, am I still able to get income protection?
If you have a health condition, you may still be able to get income protection. You will need to declare your medical condition, as it may affect your monthly premium or limit the number of insurers that we will be able to approach. It can also lead to policy exclusions.
Depending on the medical condition, in some cases it might not affect your premium or cover at all.
If I do have a medical condition, am I expected to complete a medical?
It could be requested, but it will depend on the medical condition that you’re declaring or the provider. If that is the case, we will inform you if you need to complete a medical or not; we’ll guide you through the process of getting that completed.
How long do I need to wait before I receive payment once I’ve made a claim?
You can choose your waiting period when you take out a policy, you can typically choose from 1 day, 1 week, 4 weeks, 8 weeks, 13 weeks, 26 weeks or 52 weeks. The waiting period you choose depends on how quickly you’d need the policy to start paying out if you couldn’t work.
The waiting period is another thing that can affect the price of your policy, the longer you can wait, usually the cheaper your monthly premiums will be.
Those who may be in employment, tend to opt for the 4 weeks options as they usually have the previous month’s pay from their employer to tie them over in the meantime. Whilst if you’re self-employed, you may opt for a quicker pay out time.
What’s the difference between income protection and critical illness?
These two types of insurance are quite different. Income protection will pay a percentage of your salary as regular payments until you return back to work. Furthermore, it can be used whether you’re too ill to work or if you’re injured. It also doesn’t matter what the illness is.
Critical illness is a lump sum payment if you were to be diagnosed with a life altering illness such as cancer, a heart attack, a stroke etc. This type of policy is very unlikely to cover you if you were injured from something such as a broken leg.
Speak to Andy today about your income protection!
If you’re interested in income protection or wish to find out more about it, get in touch with Andy or anyone else on the Amplo Mortgages team today. Call us on 01270 443510 or complete our contact form and we’ll be in touch whenever is best for you.