Beginners' guide to Protection

Income protection insurance

Income protection insurance is designed to provide you with a guaranteed regular income if you’re too ill to work due to sickness or injury. You usually continue to receive this regular income until you’re well enough to return to work. You’ll often find income protection referred to as permanent health insurance, income replacement insurance or long-term disability cover – but they do roughly the same thing.

When you buy income protection you choose how much income you want to receive. The maximum income is typically up to 65% of your earned income. The payments are tax-free though, so the shortfall might not be as much as you think.

 

You need to choose when you want the regular payments to start should you have to make a claim. You may be lucky enough to have an employer who’ll continue to pay you an income for some time. Income protection typically pays out once you’re ‘in claim’ until you retire or you recover but you can choose to stop it earlier perhaps once a mortgage has been paid off. Income protection payments will also stop if you do go back to work. If you were to fall ill again you may be able to claim again.

The cost of this kind of policy can either be ‘guaranteed’ at the outset or ‘reviewable’. A guaranteed policy could cost more but gives you the peace of mind of knowing that the amount you pay for the insurance won’t change. With reviewable policies, the amount you pay can increase when rates are reviewed, typically every five or ten years. There are usually no limits to how much your premium may increase when rates are reviewed.