Income Protection Insurance

We all insure our cars and homes however we often forget to protect what pays for it all, our earnings.

Income insurance is designed to protect up to 65% of your gross salary in both the short and long term should you be unable to work due to accident or sickness and in the case of short term protection, unemployment as well.

According to the Department for Work and Pensions (DWP) there were over 370,000 people claiming Employment and Support Allowance (ESA) for incapacity in August 2009.

With ESA standing at only £95.15 per week, permanent health insurance allows many individuals to maintain their standard of living should they lose their income due to sickness or injury.Since 2005, DWP figures also show that the average claim for incapacity benefit stands at nearly 3 years.

Permanent health insurance would pay you a tax-free monthly benefit if you suffer sickness or injury that prevents you from working, including conditions such as stress, depression, back conditions, heart disease and cancer.

The payout from the policy can be used for anything you so wish without restriction, whether that be for mortgage repayments, utility bills or general living expenses.

If you suffer sickness or injury that prevents you from working your income insurance plan will begin to pay a monthly benefit after your chosen deferred period either until the policy ends or you return to work.

It is possible to insure up to 65% of your gross (pre-tax) earnings for anything from 5 years to the normal retirement age with salary insurance deferred periods ranging from 1 month to 12 months.

Long term disability insurance is a well established and respected form of income insurance, which some insurers having offered this product for over 100 years, whereas payment protection a relatively new type of insurance cover.

This traditional policy type provides long-term earnings protection from the risk of sickness or injury, possibly paying out all the way until retirement.

John, an IT consultant, has taken out a self employed income protection plan and suffered a type of cancer that kept him off work for just over 6 years while he received treatment and recovered.

After John's chosen deferred period of 6 months, his permanent health policy paid him a monthly tax-free benefit of £790 each and every month for 6 years, totalling close to £57,000, representing 50% of his gross annual salary.

Designed to provides short-term earnings cover against the risk of accident, sickness and unemployment, with policies paying out for a maximum period of 24 months.

Short term policies do not tend to ba as comprehensive as teh traditional options which is highlight with their being no medical underwriting and reviewable premiums.

Mike and Jenny, an engineer and nurse from London, took out a salary protection policy to cover their joint monthly mortgage payment of £1,000 plus an extra 25% for associated home costs.

They decided to split the benefit in a 50:50 ratio so that the policy would payout £625 if either of them were off work. After six months of taking out the policy Mike was made redundant which kept him out of work for 4 months.

With their chosen deferred period of 30 days (with no back to day one cover) the policy made its first payment of £625 on day 61 of their claim (having accumulated from day 31).

Over the 4 months the policy made 3 payments of £625 before Mike was able to return to work, totalling £1,875. Thus, via his loan protection insurance Mike was able to keep up with his share of the joint loan repayments whilst he was unemployed, plus a little extra for living costs.