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Income Protection pays out in the event you are unable to work due to an illness. The policy normally has a deferment period before it will kick in. The most popular deferment periods chosen are 1 month, 3 months or 6 months, but the best option for you normally depends on what sick pay you already receive from your employer e.g. if you receive 6 months full sick pay then the ideal option for you is income protection with a 6 month deferment period. This will be considerably cheaper than a policy that kicks in after 30 days. On the other hand if you are self employed and have no sickness benefits you may need something to kick in straight away.
Our expert advisers are well trained on income protection and have the ability to offer plans that match your unique circumstances. Often cases are not straight forward and we regularly come across people with staggered sick pay i.e. they receive 3 months full pay and 3 months half pay. In these instances it’s possible to have a policy that pays out half after 3 months and the full amount after 6 months. This not only makes sure your monthly income remains consistent, but also keeps your income protection policy affordable.
Who needs it?
According to the Association of British Insurers over 1 million workers in the UK find themselves unable to work due to a serious illness or injury.
However when our advisers speak to people about income protection commonly all we hear is:
- “It won’t happen to me”
- “I can’t afford it”
- “The state can look after me”
- “I get employer sick pay”
- “Those policies don’t pay out”
- “I don’t need IP if I have critical illness cover and life insurance”.
However in reality if you’re off work from an illness and don’t have any sick pay you’re relying on state statutory sick pay of £88.45 per week which is only a fraction of the annual salary in the UK.
Let’s Take a Look at the Figures
The latest data available is for the year ending 31st December 2014;
For the year 2014 for the UK the average payout was just over £10,000 with an average claim of 204 weeks (nearly four years), totalling £39,200, to help those unable to work. Of total claims 92.9% were paid out compared to 2013’s figure of 91.1%. The total payout for the year was £134 million to 13,273 families.
Income Protection VS Critical Illness Insurance?
In the UK critical illness is 5 times more popular than Income Protection. The main reason for this is due to the fact critical illness offers a lump sum on payout and let’s face it £100,000 payout can sound more attractive than £1,500 a month being paid out.
In reality their both great products and help families get through difficult times. However one of the main differences is that critical illness only pays out if you get one of the specific illnesses listed by the insurer and that illness meets their definition, whereas income protection pays out on any illness that means you cannot return to work. On the other hand if you do become seriously ill an immediate payout of for example £100,000 from a critical illness payout could help transform your home to accommodate for the illness whereas a small monthly sum might not be as effective.
How much cover will I need?
Our expert adviser’s build a financial picture of your circumstances that is completely unique to you. This enables us to provide you with bespoke financial protection service of the highest quality. The factors we look at for income protection are monthly income, expenditure and your employee benefits. Most insurance houses offer cover up to 50% – 60% of your annual gross salary and will insure you to a maximum age of 70.
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At Simply Life Insurance our advisers offer full financial advice on Income Protection. So for more information get in touch.