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A few things you’d like to clear up first? Maybe you’re not sure why it’s worth comparing your income protection insurance, how long it will take or what cover you need?
Well, then you’re in luck. We’ve written the following answers to questions frequently thought but rarely asked, about finding great deals on your insurance.
This should not be constructed as advice and is guidance only.
What is income protection insurance?
Income protection insurance is a policy that protects you against loss of income due to unemployment, illness or accident. It could provide you with a tax-free income and may continue to pay out until you are able to return back to work or retire.
When choosing your insurance policy (also known as ASU, or accident, sickness and unemployment insurance), there are three main cover options for you to choose from. They will determine how the policy works and when it may pay out. You’ll need to choose one from one of the types below, or you may decide on a policy combining them:
- Illness – for cover against sickness and being unable to work
- Accident – protection against accidents leaving you unable to work
- Unemployment – losing your job
These insurance policies are designed to help you pay your bills if any of the above should happen, so that you can maintain your standard of living while you’re not able to work. By paying a monthly premium, if any of those circumstances were to happen, your policy would kick in to allow you to cover your bills, such as your monthly mortgage or rent, loan/credit card repayments or utility bills.
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?
While there are some variations, primarily, PHI will cover you for as many months as required until you reach your retirement age. In contrast, 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. PHI will then 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 the 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.