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UK Income Protection – What is it and Who is it for?
Why You Need To Protect Your Income
If you work in a physically hazardous job or if you’re at risk of disease, you might want to consider UK income protection. Income protection can help protect you and your family against unexpected loss of income, specifically because of accidents or illness.
What Is Income Protection?
Income protection is a type of insurance that protects you against loss of income. In the case of an injury or serious illness that takes you away from your job, the insurance policy will pay you instead through tax-free income.
There are three different types of policies you can choose from: Guaranteed, reviewable or age-related. If you choose a guaranteed policy, the amount you pay is fixed at the beginning and never changes. Reviewable policies can change in a few years time. Age related policies go up as you get older.
If you plan on being on income protection for a long period of time, it’s usually a good idea to get a guaranteed payment. On the other hand, if you only want protection for a few years, then getting the age related or reviewable policies can help you save money as the first few years are usually quite inexpensive.
What Does Income Protection Protect Against?
What income protection helps guard against depends on your policy. First and foremost, it’s important to realize that income protection is only meant for illness and accident related causes of unemployment. If you get fired or laid off, income protection does not cover you.
Depending on your plan, income protection can cover you for:
- Your job. If you lose your job because of accident or injury, you’ll receive compensation from your insurance.
- Your field. If as a result of an accident or injury you’re no longer able to work in your field at all, you’ll receive compensation.
- Any job. If you can’t get any job at all because of an accident or injury, your compensation will cover it.
The level of coverage you choose to get should depend on how high the risk of injury is in your current occupation.
What Happens When You File a Claim
Almost all policies have what’s called a deferred period. This is the amount of time that needs to lapse between filing a claim and receiving compensation. This period can be 1, 3, 6 or 12 months long. The longer the period, the lower your monthly premiums.
Once you start receiving your compensation, you’ll get paid anywhere between 40% and 70% of what you were earning while you were working at your job. Your compensation payments will continue to come in until you’ve recovered enough to work again.
Note that there are a number of things that can happen during the payment period that can disqualify you. Any drug use, alcohol abuse, self-harm or criminal activity can cause your plan to discontinue.
Is income protection for you? The decision is best made as a family. Having income protection will help prevent your family from financial difficulties if health issues arise. However, the monthly investment in a health plan can quickly add up. Whether it’s worth it or not is a case by case decision.