Income protection insurance does exactly what it says on the tin- it will protect your income if you are unable to work because of accident, sickness or unemployment. Whilst this type of insurance is invaluable, only a very small part of the population is covered with it. If you have never considered income protection before, here are 5 reasons why you might want to invest in a policy.
1. To keep your savings intact
If you couldn’t work for a long period of time because of an illness or incapacity, how would you maintain your current lifestyle? Well, most of us would rely on government benefits or their savings. But whilst the government does offer financial help to people who are ill, injured or looking for a job, the sum they give out is very small- just over £100 a week. For many people, this would not cover their existing outgoings. Alternatively, you could dip into your savings. But with the average household spending around £1,700 a month according to HSBC, this would not last long. Income protection will prevent you from having to rely on either of these options, giving you a financial safety net.
2. To cover 60% of your income
Whilst an income protection policy will not replace all of your income (there would be no incentive for you to work if this was the case!) you can protect around 50% to 60%. This may not sound much, but don’t forget your outgoings will be greatly reduced if you are ill or injured- you will not be travelling to work for example. You can choose how much of your income you want to be covered- the more money you choose to protect the bigger your premiums will be. And don’t forget, this money is tax free.
3. To get protected until retirement age
If you choose a long-term income protection policy, it will protect you against accident and sickness up until retirement age. This means that if you cannot work because of illness or injury, your policy will pay you a monthly salary either until you are well enough to work or until you reach 65, whichever is sooner. A policy like this gives the highest level of financial security. If you were in a car accident preventing you from carrying out your job, you would have a steady income until you were fully recovered- so you only have to worry about getting better.
4. To protect against redundancy
If protection against unemployment is important for you, look for a policy with redundancy cover. Redundancy cover will replace your monthly income for 12 months if you were made involuntarily redundant, so you are not only relying on Jobseeker’s Allowance. With many big retail outlets going into administration at the moment, this is a popular choice for many people. Again, you can choose to protect up to around 60% of your income, bringing you an additional sum each month to supplement your government benefits and leaving you time to find a new job.
5. You can use the money how you wish
Unless you choose a policy which is tied into a specific debt, like mortgage payment protection or payment protection insurance, your money is yours to use as you choose. Most people decide to use their income protection money to meet their rent or mortgage payments, cover the cost of bills and council tax, and fund general lifestyle things like school fees, gym memberships and holidays. When looking for a policy, make sure you get enough cover to pay for all your essential outgoings.
About the Author:
Chloe writes for an income protection comparison website: http://www.activequote.com/income-protection/