Misconceptions about Income Protection
Many people are typically unaware of or unsure exactly what an income protection policy is and as it’s Income Protection Awareness Week, we thought we would shed some light on some misconceptions about Income Protection.
But firstly, what is income protection? Income Protection is a type of policy that can provide a regular replacement of your income if you were unable to work due to an accident, illness or injury.
The majority of people choose to have income protection because their employer only provides statutory sick pay, the amount of sick pay that they receive wouldn’t cover their monthly expenses or they’re self employed.
“I get sick pay so I don’t need income protection”
You may receive sick pay but it might be good to check how long you will receive sick pay for and if it’s enough to cover your monthly bills.
Additionally, you might receive sick pay with your current employer however if you change jobs, your new job may not offer sick pay and then income protection might be something handy. Your age will affect how much your premiums are so getting it now instead of in two or three years when you switch jobs, it’s most likely to be cheaper.
“Income Protection claims don’t get paid out”
The claim acceptance rate remains at around 98%. In more than half of the declined claims, customers have not told the insurer about key details about themselves or their circumstances when they took out the policy.
Any missing or incorrect details can invalidate a claim, that’s why we ask our clients to be honest with us. A certain medical condition for example, doesn’t necessarily mean you can’t be covered, it may mean it’s excluded from your policy so you’re unable to claim on that specific condition or anything that may be related to it.
Over 15,900 people claimed against their individual income protection policies in 2022, a 9% increase from the previous year. The total value of the claims equated to £231 million.
“I’m self employed, I can’t get income protection”
Income Protection is a type of protection insurance policy that is popular with those who are self-employed. As self-employed individuals don’t receive statuary sick pay, if they were to become ill or injured and unable to work, they won’t have an income to cover their day to day bills, mortgage repayments and/or everyday expenses.
As a result, many take out an income protection policy to cover 50%-70% of their monthly income, tax free.
“Income Protection is too expensive”
Income protection isn’t necessarily an expensive type of policy, it will come down to a number of different factors that can affect the price.
The amount you will pay for income protection will depend on a number of different reasons such as:
- What you do for a living and the risks involved in your job
- Your age
- Your medical history
- The level of cover that you need based on your average income
- How long you would like your policy to last
- How long you can wait after you claim before you receive your first payment (the deferral period).
26 year old client, 4 week deferred period, monthly benefit of £495 to cover their monthly mortgage repayments costs them £7.61 per month.
“You don’t get much per month”
How much you receive per month will depend on how much you wish to receive per month if you were off work and how much you’re willing to pay for a monthly premium.
You can receive up to 70%-80% of your monthly income or you can request a specific amount such as your monthly mortgage repayments.
“I won’t receive the payouts until it’s months later”
There are options when you’re setting up your policy of when you will receive your first payment after you make your claim. The most popular option is 4 weeks as individuals usually have around 1 month of pay before they wish to start claiming on their policy.
Conversely, you can receive your payment the day after you make your claim if you wish. Which can be quite handy for those who may be self employed and have no other source of income.
However, how long you wait before getting paid will affect your premiums. The longer you can wait, the cheaper it is per month. The waiting period will depend on your circumstances and how quickly you’d need the policy to start paying out if you couldn’t work. Your employer may offer a generous sick pay package which could be full pay for 3 months and then after 3 months, you may wish to start receiving payments from your income protection policy.
“You can only make a claim if you’re ill”
Being ill is one of the reasons that you can make a claim on your income protection policy but you can also claim if you’ve been in an accident which has led to an injury that means that you’re unable to work.
For example, if you’re a self-employed electrician, builder or plumber and you’ve broken your arm, this is most likely going to stop you from working.
The injury does not need to be a workplace accident for you to claim on your policy.
To receive your monthly benefit, you may need to prove to the insurer that you’re incapacitated with a note from a doctor or a health specialist.
If you would like to find out more about income protection or would like a no-obligation quote, don’t hesitate to get in touch with our Protection Insurance Consultant on 01270 443510 or complete our contact form and we’ll be in touch as soon as possible.
Financial protection policies typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
*Facts and figures from The Association of British Insurers. You are now leaving the website of Amplo Mortgages & Financial Solutions and we cannot be held responsible for the content of this external website.
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