Income Protection

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Article created by Christian Duncan, Director – Mortgage and Protection Adviser
Last updated 11th August 2023

The choice to secure your income is strategic and smart. It’s an investment that offers financial security and peace of mind. Understanding the intricacies of income protection insurance acts as the first step toward effective financial planning. This comprehensive guide will assist in understanding what income protection insurance is, related costs, its worth and the claims process.

What Is Income Protection Insurance?

Income protection insurance is a type of long-term insurance policy, commonly referred to as income insurance. It is designed to support you with a steady income if health predicaments prevent you from working. This protection covers most illnesses that leave you unable to execute your regular work responsibilities.

This insurance type serves as an income cover or salary protection layer, providing benefits in times of need. It includes not just work-related accidents but any health issue that hinders your ability to work. Coverage extends from short-term illnesses to serious ailments that could potentially stop you from returning to work.

Why Income Protection Insurance Is Important

Income protection serves as a contingency plan, providing a financial buffer when you are unable to work due to illness or injury. The benefits received from this coverage are generally a portion of your income, allowing you to manage everyday expenses and maintain your lifestyle.

It’s important to note, however, that there are limitations and variations based on the protection level you choose. Variables such as the waiting period, payment duration, and the percentage of income insured influence the benefits. Understanding these can help you compare income protection insurance options effectively to find the best fit.

The Cost of Income Protection Insurance

Several factors influence the cost of income protection insurance, including age, health status, lifestyle, occupation, and the level of coverage that your want to take out.  Insurance companies often provide a income protection plan and different payment policy types to cater to various financial situations and budgets. 

Claiming Income Protection Insurance

An income protection insurance claim can usually be initiated as soon as you are unfit to work due to illness or injury. It’s crucial to keep your insurer informed about any changes in your health or employment situation that could impact your coverage.  This can be done through one of our advisers free of charge.  

Are the Payments Taxable?

In the UK, the payments received from income protection insurance are tax-free, depending on your specific policy. It’s recommended to speak to a tax expert for clarity in this.

Choosing the Best Income Protection Insurance in The UK

Selecting the best income protection insurance requires a good understanding of your personal and financial needs along with sufficient market research. It is also beneficial to consider the balance between the cost and the benefits offered. Life insurance, while often conflated with income protection, serves a different purpose and may also be worth considering.

Income protection insurance is an investment in your peace of mind and financial stability. It acts as a safeguard against unpredictable life events that might impact your capacity to work. So, protect your income, ensure your well-being, and navigate life’s uncertainties with the reassurance of a insurance support system. Your future self will thank you.

The Role of Income Protection Insurance in Personal Finance

When devising a comprehensive personal finance strategy, considering safeguards like income protection insurance becomes imperative. The insurance provides an essential safety net, supplementing your income when you’re unable to work due to health issues. Let’s delve deeper into its role and relevance.

Comparing Income Protection Insurance Policies

Like any other insurance, income protection insurance has various policies and providers in the market. When comparing income protection insurance, certain key features need to be considered. These typically include:

  1. Premium cost: The monthly payment required to maintain the policy. This can vary widely depending on lifestyle factors, occupation, and the age of the policyholder.  Ensuring the premium is affordable is imperative and doesn’t put you under any financial strain. 

  2. Coverage Amount: The level of income you wish to protect influences the coverage amount. The more you want to insure, the higher your premium will likely be.

  3. Waiting period: The time between making a claim and when the payments commence. A longer waiting period generally equates to lower premiums.

  4. Benefit period: The length of time you will receive payments after a claim has been made. This could range from a few years to until retirement.

  5. Policy exclusions: It’s crucial to pay special attention to what the policy does not cover – pre-existing conditions or specific illnesses could be excluded.

Final Thoughts on Income Protection Insurance

In an unpredictable world, income protection insurance is a wise and forward-thinking investment. By embracing such protective measures, you gain financial stability and maintain your independence. Remember to scrutinise policy details, understand coverage limitations, and explore various company offerings with your broker before settling for a policy. Choose wisely, as the right policy can provide a financial cushion when you need it most.  If you would like to book a free consultation with an adviser please click here.

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