Income protection is an insurance policy that replaces loss of income due to an accident, sickness and sometimes involuntary redundancy. Here at Wellesley, we can advise whether an Income Protection policy would be suitable for you and help you obtain effective cover for your circumstances.
The policies are designed to act as a personal sick pay policy and can be used to protect essential monthly outgoings, such as mortgage/rental payments, household bills and food shopping costs.
The main feature of an income protection policy is the incapacity definition, of which there are three:
- Own Occupation: Unable to perform Own Occupational duties
- Suited Occupation: You can’t undertake your own occupation or similar roles that suit your qualifications and experience
- Any Occupation/Activities of Daily Living: You are unable to do any type of work.
(Example, if you were a Construction Supervisor and needed to physically inspect building work, any condition that stopped you walking would be eligible for a claim under an ‘own occupation’ plan.
Under an ‘any occupation’ plan, the insurer wouldn’t pay out, because you’d still be able to perform some type of work, such as working in a less demanding role that does not require walking,
In nearly all cases, ‘Own Occupation’ cover will be the most appropriate.
The policy will cover a maximum of between 50-70% of your gross annual income and will provide this income monthly and tax-free. This will be paid until you are either able to go back to work, the cover period ends, or you reach your retirement age.
This monthly amount can either be level (staying the same) or index-linked (increasing each year at the rate of inflation. This ensures your money retains its buying power).
The amount of time you’re off sick before your policy pays out is called the ‘deferral period’ (also known as the excess or waiting period).
Insurance providers will offer many different options for your policy’s deferred period ranging from as short as 1 day up to 12 months or even 24 months.
The longer your waiting period the cheaper the premiums will be, which is why we recommend aligning the deferral period with either your sick pay provisions, or however long you feel you can survive on your savings comfortably.
How long will it cover me for?
As long as you want it too. Full cover is until you reach your chosen retirement age or, alternatively, insurers can offer a 12, 24 or 60-month cover period.
Due to the complex nature of this protection, and the various options available to certain occupations, it is always best to speak to an adviser to ensure you have the correct cover for your circumstances, at the most competitive premium. We at Wellesley can help you with this.