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        0808 189 0463

        Updated: April 19, 2024

        Income Protection Insurance

        All you need to know about income protection insurance, including how it works, who it's for and how to get the best deal

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        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in income protection. Ask us a question and we'll get the best expert to help.

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        Find out where to get the best deals on income protection insurance.

        The advisors we work with are experts when it comes to income protection insurance, and they can help you find the deal that best suits your circumstances.

        What is income protection insurance?

        Previously known as Permanent Health Insurance (PHI), income protection insurance is designed to pay you a monthly income should you become unable to work through injury or illness.

        It’s worth noting that income protection insurance comes in two forms:

        • Income protection insurance – which pays you a monthly sum until you either return to work, or reach retirement age
        • Short-term income protection insurance – which pays you a monthly sum, but for a limited period, usually between two and five years per claim

        As you might expect, the second option is considerably cheaper than the first, so you need to balance this difference in affordability against the benefits that each type of Income Protection policy offers.

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        How does it work?

        As we already noted, income protection insurance was formerly known as Permanent Health Insurance, which was arguably a much more accurate name than simply income protection.

        That’s because income protection insurance is designed to offer a permanent solution in cases where you become unable to work through illness. As long as a particular illness or disability is covered by your policy, your policy will pay you a monthly income until you can return to work or retire.

        In fact, income protection can only be taken out for a term which is usually retirement, but can also be used to cover a mortgage, and the term then would be at the end of the mortgage.

        It’s also worth noting that you can make as many claims as necessary during the term of your policy, regardless of whether you need to claim for a new illness or injury, or the recurrence of the same one.

        The other main condition to consider before taking out income protection insurance is that there will usually be a delay, known as a deferment period, before payments start following a claim, in the expectation that your employer will offer sick pay for a certain period of time. You can choose a policy with a shorter delay at the start, but this will quite naturally mean higher premiums throughout the term of your policy.

        Why is it important?

        According to Association of British Insurers (ABI) figures, more than a million Britons find themselves unable to work due to serious illness or injury every single year.

        Naturally, sick pay and government benefits provide some help in that scenario, but many of us have commitments that take up most of our monthly salary, and very few people could manage without that money for very long.

        Income Protection Insurance therefore offers considerable peace of mind – particularly if you are the main breadwinner – which is why many financial experts recommend it.

        However, it is just one of the types of insurance policy you can choose to help protect yourself in the event of serious illness; so it is always worth talking to one of the experts we work with to ensure you understand which type, or which combination of policy types, is right for your personal circumstances.

        Income protection vs. life insurance

        While this might seem like a somewhat extreme comparison, it’s important to understand that most life insurance policies don’t simply pay out after you have died.

        The majority of life policies will actually pay out in full in the event that you are diagnosed with any condition that doctors expect to cause your death within 12 months. Naturally, this is a worst-case scenario that none of us like to think about; but the fact is that life insurance will act as a form of income protection in the event that you suffer a very serious illness or injury.

        Income protection insurance vs. critical illness cover

        Critical illness insurance is designed to offer a single lump sum payment in the event that you suffer one of a range of specified serious illnesses.

        Crucially, these aren’t necessarily fatal illnesses, and can include everything from early-onset Alzheimer’s to amputations, and from HIV to heart attacks.

        Critical illness cover is therefore a very common choice, as a significant lump sum in the event of serious illness can be extremely useful: to help cover living expenses, or perhaps to pay off a mortgage if the insured sum is high enough.

        However, many serious illnesses can prevent you from ever working again. So it’s worth recognising that if you were to suffer a critical illness at a young age, it is unlikely that any lump sum paid out by critical illness insurance would last you until your retirement.

        Conversely, income protection insurance is designed to do just that.

        Is it worth it?

        While motor insurance is compulsory, most of the other policies you can buy – including income protection insurance – are optional.

        Whether income protection insurance is worth it or not really depends on your attitude to risk.

        If you’re happy to bet on a lifetime of good health and the avoidance of all serious injuries, then income protection may not be for you.

        However, many people enjoy the peace of mind that comes with knowing they have a guaranteed income whether they are well enough to work or not.

        The statistics also suggest that income protection insurance is a good idea.

        The estimate of one million Britons a year being unable to work due to illness or injury is a pretty sobering statistic. It’s also worth bearing in mind that Cancer Research UK figures show that no less than half of us will receive a cancer diagnosis at some point in our lives.

        So while most of us are happy to take good health for granted, there is a very good case for making sure that you have some kind of insurance in place, and income protection may well be right for you.

        The pros and cons

        While this article is primarily about income protection insurance, we have compared and contrasted it with life insurance and critical illness insurance with good reason.

        These three very different policies all provide protection in their own ways, and can complement each other to provide the type and level of cover that’s right for your own personal circumstances.

        For example, people with no dependants often believe that critical illness cover is a far better idea for them than life insurance, as it would pay a lump sum even if an illness or were not likely to prove fatal. Yet life insurance generally has far lower premiums.

        By the same token, income protection insurance provides a permanent income that would in all probability outlast any lump sum you might receive from a critical illness insurance policy.

        Talk to an expert today

        There really is a lot to consider before taking out any insurance policies. That’s why you will find more detailed information about all of these options elsewhere on the website.

        However, we strongly recommend that you take expert advice before making any decisions, simply to make sure that you understand the advantages, disadvantages and complementary nature of all the options.

        To do so, call Online Money Advisor now on 0808 189 0463 or send us your enquiry here.

        Ask a quick question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in income protection. Ask us a question and we'll get the best expert to help.

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        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.