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Glossary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income protection insurance

Income Protection Insurance: 
Is It Worth the Cost?


Also known as permanent health insurance, an income protection insurance policy aims to pay you an income if you cannot work. In most cases, permanent health insurance policies will give you cover if you cannot work through illness or injury with some income protection insurance plans also kicking in if you lose your job or are made redundant.  Most will pay you an income whilst some can be set up to pay mortgage or loan costs.

So, if you develop a serious illness that prevents you from working for a long period then income protection insurance will help replace the income you lose or help meet the costs of loans products such as mortgages or loans. Policies can be set up to cover the short term (i.e. 12-24 months) or for longer term needs.

Do you need this kind of income protection insurance cover?

Many consumers sit on the fence when it comes to this kind of insurance cover, as they can see the benefits of having a helping financial hand to cover costs in these circumstances, but they feel that the costs of setting up a policy are high. To be honest, not everybody will benefit from taking out this kind of policy, but many people will. The easiest way to work out if permanent health insurance or income protection insurance will suit you is to think about what would happen if you didn't have your income. So, for example:

  • The money you will need: Work out how much money you need to survive on a monthly basis. This could, for example, include mortgage costs, loan costs, and everyday living costs.

  • The money you will get: Work out what money you will get if you cannot work through illness, accident, or injury. This could include:
    • Partner income: Does your partner earn enough to pay the essential bills and your day-to-day living costs?

    • Employer income: How long will your employer pay you if you are off work for a long period? How much of your actual salary will you get?

    • Savings: How much do you have in savings? How long would they last you?

    • Benefits: Would you qualify for benefits when your employer stops paying your salary? How much would you get?

    • Other policies: Do you have any other cover in place such as mortgage protection insurance that could bear some of the costs here?

If you work out that you would not have sufficient income coming in in the event of illness, injury, or losing your job, then you may well need to think about taking out some form of income protection insurance. This way, if something does go wrong, your permanent health insurance will make sure that your finances don't add to an already stressful situation.

Another common mistake that people make in this regard is to think that they already have enough protection because they have a life insurance and/or critical illness policy in place. But, bear in mind that you'll only get a life insurance payout if you die and critical illness only pays out for specific conditions. So, if you have an accident or get a different kind of illness, then you won't get any income protection insurance cover that way.

Do bear in mind that some standard income protection insurance and permanent health insurance policies won't suit everyone. For example, many self-employed people will not qualify for many income protection insurance policies and may need to take out specialist permanent health insurance cover to suit their particular needs. So, if you do decide to go for this kind of protection, make sure that you will be covered before you commit to paying for it.                   

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