Income Protection Insurance

Make sure you’re covered if you are unable to work

Income protection insurance is a type of cover that is designed to help you should you be unable to work due to illness or injury by replacing part of your income. It also provides cover to pay out until you are able to start work again (or until you retire, die, or the policy ends).

This cover is not the same as critical illness insurance as you receive regular payments to replace your income, rather than the one lump sum payment if you are diagnosed with a specific illness that your insurer recognises as a critical illness.

In the UK, many workers are unable to work each year due to an injury or serious illness. Most only consider whether or not they have dependents such as children to look after, but for many simply not having their normal income could mean they are unable to even pay their own bills. Even if you do have sick pay to fall back on, you should check to see exactly what your employer does and does not provide, your mortgage and protection advisor will be able to help you find more information about what funds would be available to you.

Income protection typically pays out around 60% of your earnings tax-free. Payments will start being made after your agreed ‘deferral’ period. This can be anything from one month to a year – the longer it is the cheaper your payments. By default, your deferral period will be around 13 to 26 weeks.

It is worth knowing the specific differences between PPI (the widely-miss sold payment protection insurance) and IPI (Income protection insurance). PPI will only cover you for one particular debt. This will go straight from your PPI provider to your lender. Income protection insurance gives you a percentage of your income directly to you, without tax. This leaves you free to spend it on whatever you wish.

As with all financial products we always recommend speaking to a mortgage and protection advisor before making any final decisions. MFS has advisors throughout the country able to provide whole of market advice. Get in touch today to book an appointment.

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