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Income protection – It isn’t all about your mortgage

Income Protection cover, as its name suggests, is designed to ensure you will continue to receive an income if you are unable to work due to illness or disability. Income protection usually pays out until retirement, death or your return to work, although short-term income protection policies, which last for one or two years, are also available at a lower cost. Neither income protection or short-term income protection pays out if you’re made redundant – but they will often provide ‘back to work’ help if you’re off sick. 

 

“Protection” policies have come under scrutiny in recent years. Income protection isn’t the same as payment protection insurance (PPI). Where PPI covers a specific debt and any pay-outs go to your lender, income protection gives you a tax-free proportion of your income if you’re unable to work because of illness or injury. Many people’s first contact with this type of policy is when they apply for a mortgage. A typical question was posted on an internet forum recently. “I’m buying a house in the next week or so, and I’m under the impression I need some sort of insurance to cover mortgages etc? Basically, it sounds like a minefield, and everyone I speak to has a different opinion” The answer is of course that you don’t have to have anything, but the prudent course of action is to look at your personal circumstances and be clear about what commitments you would need to cover in the event you were unable to work for any length of time. 

 

As income protection is paid directly to you rather than an individual lender it can be used to cover other important outgoings, loans, car payments, credit cards, or just for general living expenses. So, if you have a partner still in work the flexibility of being able to replace a proportion of your income that can be used as required. The benefits system is designed to support people who cannot work through illness or disability, are looking for work, or have a low income. The government is looking to consolidate multiple different benefits into a single system called Universal Credit, which means there will be changes that may affect your income protection policy. It will affect the amount of level of state benefits you’ll get. Income protection is treated as ‘unearned income’, meaning you need may need to consider balancing the provision you make against what is available from the state. As always I am happy to discuss your personal circumstances so please get in touch for some advice.

“Payment Protection Insurance is optional.  There are other providers of Payment Protection Insurance and other products designed to protect you against loss of income”

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