Income Protection Insurance

13-Oct-2008

Income Protection insurance provides you financial protection against illness, injury, or disability. The Income Protection policy will typically cover you until you are able to return to work, or for a period of up to 12 months. 

As a way of ensuring that your lifestyle does not have to be dramatically altered in the event of a loss of income, your policy will provide you with a monthly lump sum, designed to replace about 50-60 per cent of your gross earnings to help toward financial commitments and the cost of living.  There will be restrictions to the amount that you are able to receive, so check with your insurer before you proceed with the policy to avoid any unexpectedly exclusions when you claim.

You can choose to include Critical Illness cover in your Income Protection policy, which would pay out a lump sum should you be diagnosed with a critical illness.  This is designed to help you and your family cover the treatment and day to day living costs associated with living with a serious medical condition. Before you take out this type of cover, make sure that you have read the policy terms and conditions, as the insurer will specify a list of illnesses that are eligible.

Income protection policies have recently come under the spotlight because there have been a certain amount of policies in recent years deemed to have been sold incorrectly.  Income protection (also known as payment protection insurance) should not be sold to anyone who is outside the age range or suffering from any of the medical conditions that would usually exclude you from the policy. 

For full details of all the reasons an income protection policy might have been mis-sold and for details of how to claim your money back, please read our mis-sold PPI (payment protection insurance) article.  As a basic guide however, if there is any reason that you feel that an insurance policy was sold to you unfairly or without your knowledge (for example, alongside a store card), you may have grounds for a claim.

However, Income Protection insurance is a legitimate and useful product that could provide important protection for you and your family. Currently, there are over 2 million people in the UK who have been claiming incapacity benefit for more than six months due to sickness or redundancy, and many of them could have benefited from an income protection policy. No one can predict the future, but you can definitely plan for it.