Why should I consider income protection?
We all know of people who have become sick and are no longer able to work. You should consider what you would do if your main income through your work dries up due to illness. You may get some sort of sick pay if you are employed, but often this is for a shorter period than you would imagine. For example, it is rare for a company to provide sick pay beyond a month of illness.

Of course, if you are self-employed you will not have such a safety net. The alternative is to rely on savings, but how long would this last for you?

We recommend that you think about your outgoings: your mortgage, food, utilities etc. The question is what would you have to give up if your income was drastically inhibited?

The state will provide for me
According to the Department of Work and Pensions, the state currently pays ESA or Incapacity Benefit to 2.62 million people. This represents around 7% of the working population. (Source: Department for Work & Pensions)

How much benefit will I get?
The amount depends on your individual situation, and will be assessed according to your severity of illness, and the length of time you have been unable to work. The starting point is £81.60 per week. See the Direct.gov website for more information.

How does income protection work?
You can take out a policy to cover your outgoings should you be unable to work due to illness. The cost depends on your age, sex, occupation, health and other relevant factors.

Usually, the policy would have a ‘deferred period’. If you are sick and want to claim, you would have to wait until the end of this period before you can claim. The longer the deferred period, the cheaper the plan will be, because you will be less likely to claim. You can select deferred periods from 4 weeks to 52 weeks with most plans.

How much can I cover?
Most plans work on a percentage of your income before tax. Typically, this will be around 50% of your income before tax. As the benefits will be tax-free, this usually represents around 85% of you income after tax. The idea behind this is that the extra 15% will be your encouragement to go back to work when you are able.

How long will the plan pay out?
It will continue to pay out until you are fit enough to return to work, or you reach the end of the plan. Thus, some people have managed to claim for many years if they have a particularly serious illness.

Is this similar to critical illness?
Critical illness pays out a lump sum if you are diagnosed with a serious, named illness on the policy. Income protection pays an income, if you are unable to work due to sickness. Thus, income protection seeks to put money in your hands to pay your bills.

Also, income protection pays around half of claims to back pain and stress related illnesses; these illnesses would not be covered by critical illness.

Who is income protection appropriate for?
Anyone of working age, who has a family or lifestyle to support, which would suffer if they were unable to work for an extended period.

Income protection for businesses
Businesses often take out income protection plans to cover key employees, should they be too ill to work. The business can insure the individual so that they can either continue to pay that employee during sickness, or to be able to fund a temporary replacement. This is especially useful for directors, or business owners who would need to hire in someone to run things in their absence. Premiums would attract tax relief, although the benefits would be taxable.