You may not have heard of income protection insurance, but it is actually one of the most useful types of insurance on the market. Income protection will pay you a monthly income if you are unable to work because of accident or sickness. So what are the advantages of this type of plan, and what are the pitfalls?

Advantages

1) Useful if you are self-employed

People who are self-employed do not benefit from sick pay like the rest of us, and if they cannot go to work it can put their business on the line. Income protection will pay you a monthly income if you are unable to work because of an injury or an illness, giving you financial security to recover fully.

2) You do not have to rely on benefits

If accident or sickness stops you from being able to earn an income, you will generally have to rely on savings, your partner’s wage or government Employment and Support Allowance (ESA). ESA can be a lifesaver for many people, but it may not pay enough to maintain your current lifestyle. Income protection can cover around 50-65% of your monthly wage, offering much more support.

3) You can get cover until retirement age

Income protection plans have the potential to pay out until retirement age if needed. When you take out a policy you can choose your ‘benefit period’, which is the length of time your insurer will pay you for if you cannot work. Long-term policies will cover you until you can bet back to work or until age 65, whichever is soonest.

4) You can cover redundancy

Some income protection policies offer cover for redundancy as well as accident and sickness. Whilst redundancy cover will only pay out for a maximum of 12 months, this can be enough time for you to get back into work. Unemployment cover often includes free ‘back to work’ schemes which can help you return to a job.

Pitfalls

1) Don’t confuse income protection with PPI

PPI, or payment protection insurance, has hit the news recently for being heavily mis-sold over the past decade. PPI will cover your credit card or loan repayments if you are unable to work because of accident, sickness or unemployment, but only up to 12 months. In contrast, income protection gives you a monthly salary to pay for whatever you deem fit, and cover does not have to stop after 12 months.

2) Don’t buy the first policy you find

After the PPI scandal it is even more important to compare the market before taking out a policy, rather than just buying the first one you come across. There are a number of different insurers and plans in the UK each with their own features and benefits, and it would be a mistake not to do your research first.

3) Disclose everything

Some income protection policies will require you to disclose your medical history on application. It is very important that you tell the truth from the outset about any advice, symptoms or treatment you have sought in the past. If you lie on your application and you get caught out, your insurer will not pay out and you will receive no refund of premiums.

Chloe writes for an income protection comparison website, where you can compare income protection policies and buy your chosen income protection quote online.

Chloe writes for http://www.activequote.com/income-protection/, an income protection comparison website.

Author Bio: Chloe writes for an income protection comparison website, where you can compare income protection policies and buy your chosen income protection quote online.

Category: Finances
Keywords: income protection, income protection insurance