Income Protection

Independent Income Protection Advice

Whether you're self-employed or employed, it's common to overlook the security of your steady and regular income. But have you ever considered the potential scenarios where you might be unable to work or earn your usual income temporarily or permanently? How would you and your loved ones manage in such a situation? Even if you could manage for a short period, how long would it be before you begin to feel the financial pressure?

What is income protection?

Income protection is a type of policy that ensures you receive a regular income if you're unable to work due to an injury or illness, following a specified waiting period.

For instance, let's consider a basic scenario… You work for an employer who provides sick pay for one month, allowing you to continue receiving your usual income during that time. However, if your inability to work extends beyond that initial month, you would typically rely on statutory sick pay (SSP), which is typically around £100 per week.

Income protection is designed to come into effect as soon as your sick pay ends. In the above example, during the second month of your inability to work, your policy would start providing you with a predetermined monthly income.

Income protection pays out a percentage of your earnings before income tax, usually between 60% and 70% – with payments being free of income tax. While there are certain limits on the coverage amount, the insurer will continue to pay until you either return to work or, in the worst-case scenario, until your retirement. Some policies may also specify a limited pay-out duration, however these less comprehensive plans are usually cheaper, providing another option for people with smaller budgets.

The primary goal is to ensure that you can continue covering essential expenses such as your mortgage and bills without resorting to borrowing money, or missing payments.

Who should have income protection?

Anybody with a source of income should consider safeguarding it, whether they are employed or self-employed. For most of us, losing a steady and regular income would be financially challenging.

If the loss of your employed income would be a significant financial setback, or if you lack income from your business, it's advisable to establish income protection.

While employers may provide temporary income coverage in the form of sick pay, it's essential to plan for the future. What if you were unable to work for an extended period, possibly a year or more? How would you manage essential expenses such as your mortgage, bills, and other financial obligations?

How does income protection differ to life insurance and critical illness cover?

It's important to note that income protection differs from life insurance in that it doesn't provide a pay-out on death, nor does it serve as a safety net for your family after your passing. Additionally, it is distinct from critical illness cover as it doesn't grant you a lump sum payment.

Income protection is specifically designed to safeguard your monthly earnings, effectively serving as a replacement for your regular salary. In the event of a critical illness that prevents you from working, you can make a claim on the policy. However, unlike critical illness coverage, it doesn't offer a one-time cash pay-out.

Crucially, income protection does not cover situations of unemployment or redundancy. Its primary purpose is to provide financial support when you are unable to work due to an injury or illness. To receive income protection payments, you must provide evidence from your GP confirming your inability to work.

Looking for income protection insurance advice
in Leamington Spa & Warwickshire?

Jack Bewick offers tailored and specialist financial protection advice across Warwick, Leamington Spa, Kenilworth, Stratford upon Avon, Coventry & Warwickshire, Lutterworth & Leicestershire areas.

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