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Feb 25

Is income protection insurance really worth it?

Reading Time: 3 mins

We all know that life is better with a plan. In fact, taking out life insurance or car insurance is considered an essential part of protecting your financial future. But interestingly,  most people do not feel that they have a need for income protection.

If you unexpectedly become too ill or injured to work for a long time, how would you cope financially? How would you make sure that your family is able to maintain their current standard of living? If you’re not sure, it may be time to consider getting income protection.

Want to know whether income protection is really worth it? Just keep reading!


How does income protection work?

Income protection does exactly what it says on the tin! It helps bridge the gap between recovery and returning to work by protecting your monthly income, usually between 50-70%. If your claim is approved, you will begin to receive regular tax-free payments every month to the value of this percentage. That way, if you are no longer able to work, paying your bills will be one less thing you have to worry about.

While you can’t protect all of your income, you can cover up to 80% of your earnings. Just remember that the more of your income you protect, the higher your monthly premiums will be.


Is income protection always useful?

Let’s face it, none one is invincible and the likelihood of not being able to work is higher than many of us would like to believe. In fact, according to the Association of British Insurers, around one million people unexpectedly become seriously ill or injured and are unable to work as a result.

You’re probably thinking that you don’t need income protection as you might be able to get by on sick pay. However, keep in mind that getting by on sick pay alone may only be realistic for those who have an employee benefits package that gives you income for 12 months or more. Most employers are only obligated to provide Statuary Sick Pay (SSP) for up to 28 weeks and the amount that you receive will likely be a lot less than your normal income. 1 in 3 workers who spend more than six months off work due to illness or injury continue to be unable to work five years later.

Likewise, you may also be entitled to government benefits. However, this will largely depend on your circumstances and it can be tricky to work out how much you are actually entitled to. In some cases, benefits may not sufficiently cover your outgoings. But if you have money in savings to fall back on, or perhaps you have a family member who would be willing to help you out financially whilst you’re recovering, then you may not need income protection.


What does income protection cover?

It’s important to keep in mind that you can only claim income protection insurance if your illnesses or injury leaves you out of work. How your ability to work is assessed can vary drastically from insurer to insurer, so it’s best to read your policy details carefully or speak with a protection adviser.

Similarly, the specific illnesses and injuries covered can vary between insurers and even policies. Most income protection insurance policies will cover cancer, strokes and heart disease. But again, it’s best to check your policy details to confirm what your policy actually covers. If there is an illness or injury not included in your policy, you can ask your insurer to extend the range of conditions covered. Though the insurer may charge you an extra fee for this. It’s also worth noting that income protection will not cover pre-existing conditions, so keep this in mind before taking out a policy.


How much does income protection cost?

Understandably, you may be concerned about how much income protection costs. The truth is that whilst there are a few other factors that insurers will consider, such as your health and smoker status, the cost of monthly premiums largely depends on your job.

Those who work in construction, for example, should expect to pay slightly higher premiums than those who work in an office. This is because those with riskier jobs are more likely to have an accident or injury and therefore are more likely to make a claim.  Monthly premiums essentially reflect the daily risk you face.

So, to answer the question is income protection insurance really worth it? Well, it pretty much boils down to your personal circumstances. Having said that, getting income protection insurance is something to seriously consider.


Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.


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