Whether you’re an up and coming new business, you have an established company name and several branches across the country, you’re a managing director at a large firm or you’re simply a small cog in a big system, it is important that you have income protection insurance. When suffering from an illness or injury, you are likely to still need monetary support, which you may not normally receive if you have to stop working. Income protection insurance provides pay-outs throughout this period of time that allow both you and your family to keep living onwards during this difficult time.
So what exactly are the ins and outs of Income Protection Insurance? What type of protection will you need? And is there anything you need to be aware of when looking for the right type of protection?
What Type Will You Need?
As with any insurance policy, there are different types of cover you can get depending on your needs and lifestyle. In addition to the general policies, your place of employment may also provide a version of one of these forms of cover as part of a group scheme as a benefit to your employment contract. You can always check to see whether or not this is the case as this is often cheaper than buying cover directly from an insurer.
Long Term – An IP policy that pays out until a fixed age, death or upon your safe return to work. It is underwritten from the moment you apply for the policy, not only given when you submit a claim, meaning you know the cover provided from the outset.
Short Term – This policy has a fixed maximum pay-out period of between one and five years, however like the Long Term policy, it is also underwritten. You can find out the amount of cover provided from the outset, instead of only when making a claim.
Accident, Sickness and Unemployment (ASU) Cover – This form of cover is generally cheaper than other forms of IP, however there is less of a certainty that you will be covered when putting in a claim. ASU policies can however, cover you for unemployment. ASU policies briefly screen potential customers but do not conduct full medical underwriting at the outset.
Income Protection Price Bases
Once you have chosen your type of policy, there are three main prices to choose from, depending on your specific needs. For example, some prices are better for those in high-risk professions, so you may want to choose a different price bracket based on your area of risk.
Guaranteed – Your policy will remain at a fixed rate throughout the entire term, going up in price only if you choose to increase the cover. Although they can be a little expensive to start off, they provide guaranteed cover and are recommended for most professionals in the long term.
Reviewable – Initially cheaper policies than the Guaranteed price, these are reviewed every five years during which time the provider can choose to increase the amount. It is important to note that some insurers reserve the right to increase your premiums providing as little as 30 days’ notice on a reviewable policy, so be careful!
Age-Related – An ideal range for those with high risk jobs or for frequent smokers. These start off relatively cheap, with the price increasing each year as you get older. However all age-related price increases are agreed upon when you first take out the policy, so you will know, in advance, of each increase before it happens.
What the Protection Does Not Cover
As with any insurance policy, there will be areas not covered by income protection and it is important that you are aware of these areas to avoid getting caught in a tight spot. Income Protection will not provide support to any claims made due to redundancy or unemployment, and some common illnesses can make it hard to claim for particular policies.
Depending on the policy itself, you may need to provide a certain amount of evidence for a common illness before the policy pays out, particularly for areas such as ‘stress’ and ‘back pain’ for example. Any questions you have relating to such issues should be raised with your policy provider to ensure that you are fully covered in all circumstances. If you have doubts or you are unsure, it is always better to ask the provider instead of simply assuming that you are covered when you may not be.
Who Can Apply for Cover?
Certain policies will provide cover for different business types but there are policies providing cover for both employed and self-employed people. If necessary, you can also find cover for housewives and househusbands, making it well worth shopping around to find the best policy to suit your needs.
When it comes down to it, organising income protection insurance is a must have for any self-respecting businessman or woman. If you are self-employed or run your own business, it is crucial that you are able to continue on in your line of work following an accident or injury. For employed professionals, you may have to leave work for a long period of time and the income protection will be able to provide you with enough security to live on during your recovery process. Having just such a safety net will help to keep many hardworking families in the black when they need it most. It is therefore always recommended that you at least look into Income Protection Insurance, if you haven’t chosen a policy already.
Article provided by Mike James, an independent content writer in the financial sector – working alongside a selection of companies including Kent-based insurance broker Flexible Health, who were consulted over the information contained in this piece.