Do you ever wonder how you would manage to pay the bills if you or your partner were unable to work for a while? This might be because of redundancy, or worse, one of you could become unwell or injured in an accident which would mean that you couldn’t work.
It’s not a nice thing to think about, but it’s important, especially if you have monthly financial commitments such as mortgage or rent, or have children to support.
Even if you have some savings set aside, these could disappear quite quickly once they are being used to pay for your monthly outgoings, food shopping and transport costs.
Ok, so now you are aware of why you might need to protect yourself and your loved ones but what policies are out there to help you do this?
What are the different types of Income Protection?
There are two main types of Income Protection policy. The first is called Permanent Health Insurance (PHI) – not to be confused with private health insurance that covers medical costs. PHI allows you to protect a portion of your income, often 50% of your gross salary in the event of illness or an accident and can pay out until your normal retirement age. We currently don’t provide comparisons for PHI. The second is called Accident, Sickness and Unemployment (ASU) cover and this will allow you to protect the payments on your mortgage or rent, other debts and even some extra income in the event of illness, an accident or losing your job through redundancy.
What are the key differences between the two options?
Whilst there are some variations, primarily, PHI will cover you for as many months as required until you reach your retirement age whereas ASU will cover you for a maximum of 12 or 24 monthly payments.
The deferment period (the period you are not covered for at the start of a claim or the period you have to wait before claiming) is usually 30 days for ASU whereas PHI can be tailored to start once your employee benefits stop.
ASU can include cover for redundancy, whereas PHI covers you for just accident or illness, although there is often a period at the start of your ASU policy e.g. 90 days before you can claim for loss of job.
There are less health and lifestyle questions to answer for ASU and the PHI may require a medical depending on your health history.
Can I have more than one Income Protection policy?
You can, although you should consider that this may not be the most cost effective way of getting protection. It’s also important to consider the maximum limits e.g. 50% of your monthly salary no matter how many policies you have.
An effective way of getting full protection if you have little or no employment benefits is to have an ASU policy and a PHI policy. The first covers you after 30 days for accident, sickness and after 90 days for redundancy for the first 12 months and then PHI will replace your income for as long as is required before you retire. The ASU cover for the first 12 months means that you could have a deferred period of 12 months on your PHI making it cheaper.
How does this insurance impact on my sick pay?
It doesn’t. The idea of this insurance is to take over when your sick pay ends.
Some employers will provide you with your salary for a period of time after you are ill, with some of the better packages paying you for up to 12 months. Others have little or none, so you should check what your employer will pay you and for how long? The longer you receive benefit, the longer the deferment period on your pay- out can be which allows the cost to be lower – many policies may not pay out if you are still in receipt of your salary.
If you’re self-employed you won’t have an employer to provide you with benefits so Income Protection is something you should consider.
How can I compare income protection policies?
The good news is that it’s easy to compare the different levels of cover and prices with comparethemarket.com. Just use our income protection comparison service and fill in your details and the kind of cover you are interested in. It only takes a few minutes.
You then put in the details of your income, and choose which type of insurance you want to compare. You’ll then see a price page listing all the quotes in price order. There are also different tabs you can select to view the different kinds of cover and prices.
Make sure you look at all the details of the policy, not just the price, as they will be slightly different in what they do and don’t cover.
Once you have chosen the right cover for you, click to go to the provider’s website and buy the policy. Again make sure you read all the details and are happy you’re your choice before you purchase.