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Income protection is a form of life insurance that covers you if you are unable to work due to an injury or illness. The policy is designed to pay out until retirement, death, or once you are able to go back to work. However, there are short-term plans that last between one and two years.
Different income protection policies cover different illnesses and injuries, all of which are usually clearly spelt out in the policy books.
In this post, we will explore why it’s crucial to take out an income protection policy, whether you are employed or self-employed.
Benefits Of An Income Protection Policy
Guaranteed Income Even When You Can’t Work
Let’s face it; we don’t like to think of our death or the possibility that we might fall critically ill at some point in the future. However, the reality is that every day, thousands of people’s lives in the UK are turned upside down because of a critical illness or death.
Taking out income protection cover guarantees you and your family financial protection if you are diagnosed with a critical illness. In the case of your death, your family is allowed to properly grieve instead of worrying about bills and how they are going to cover expenses in your absence.
If diagnosed with a critical illness, this policy helps to ensure that you focus on getting better instead of worrying about bills and who is going to take care of your family’s financial needs.
One of the greatest advantages of taking out an income protection policy is that most insurers are happy to customize it to suit your specific needs. For example, you can choose to pay higher premiums so that your policy pays out quicker, say within two weeks, after a successful claim. Alternatively, you can pay lower premiums and have this period extended.
Depending on individual circumstances you can choose a policy that lasts one, two, or even five years. On the other hand, you can go for one that covers you every month until you are 65 years, as long as you are unable to work. Check out this free income protection calculator to customize a feasible plan that suits your current situation.
A stepped policy will start with lower premiums when you are younger and go higher as you age. This policy recalculates your premiums every year. Level policies on the other hand calculate your premiums based on your age when you took out the policy.
Income Protection Policy For A Sick Child
Other than customizing your income protection cover, you can choose to have additional features to it. Family care cover is one of the commonly added features. If your child suffers a serious illness or accident, you will most likely be required to take time off work to take care of them.
A family care cover will ease the financial burden on you and your family as you take time off to take care of the injured child as you are paid a monthly benefit.
Faster Restoration To Normalcy
Being unable to work can lead to a lot of disruptions. Taking out an income protection policy ensures that your life and that of your family go back to normal quicker.
In the event of an injury, you will be able to go back to work after healing without feeling the consequences of the time you were out of work. And in the unfortunate event of your death, your family will not be forced to change their life immediately because of the financial implications of your death.
Did you know that you can claim income protection premiums in your yearly tax return? Yes, your taxable income and marginal tax rate are used to determine your claims. You can however only claim for premiums you pay during the financial year.
Alternatively, you can pay all your premiums a year in advance which will allow you to claim the whole amount on your return. It is important to note that you cannot claim any term life, trauma or TPD insurance premiums as these life Income protection policies insure your income and that makes them tax-deductible.
Taking out income protection policy is important as none of us knows when critical illness or a serious accident may strike. Having this cover will ensure that your family does not suffer in your absence or inability to work.
If you have dependents who would be significantly affected by your inability to work, then getting an income protection cover is highly recommended.
Before signing on those dotted lines though, be sure you understand all the terms and conditions of the plan to avoid disappointments down the line.