Cheap Income Protection Insurance

Income Protection Insurance

Imagine what would happen if you couldn't work for some reason. Perhaps you become ill, or have an accident which means you can't continue with your employment. If this happens, your income will, of course, stop, and in addition to the trauma of being ill or injured, you'd have the worry of how you would survive financially.

Income Protection, also known as Permanent Health Insurance, is an insurance policy designed to replace earnings lost through disability or illness. The policy is guaranteed to continue until its expiry date, which is usually at the age of 50, 55, 60 or 65.

Payment of the benefit starts after a waiting period after the start of the illness or disability. This is the 'deferred period'. You can choose the length of the deferred period - it could be 4, 13, 26 or 52, and the longer the deferred period, the lower the premium you pay. The benefit continues to be paid until the policy termination age, typically for 12 months, or until the person is fit to return to work, whether that is his original occupation or an alternative one.

In most cases, the maximum benefit payable is 50% of the insured person's normal monthly income, as the income from the policy is tax free. Also, the insurers are keen to encourage you to go back to work.

More and more people are needed income protection these days. State benefits are recognised as being generally inadequate for people to maintain a decent standard of living, and the government is also imposing tougher tests in order to assess disability and whether or not you are actively seeking work.

When taking out the policy, your insurance company will determine the amount of your premiums by considering the following:

  • gender - women make more claims than men
  • current state of your health, and your medical history
  • how much you smoke and drink alcohol, or if you take drugs
  • your leisure activities - if your hobby is high-risk adventure sports, for example, your premiums will be much higher, or you might even find it difficult to get insurance at all
  • your occupation
  • whether you wish the cover to be index-linked to rising inflation
  • the deferred period - the longer this is, the lower your premiums will be
  • the length of the policy - the longer it is, the more likely you are to make a claim, so your premium will be higher.