Imagine this: you become ill or injured and you can’t work for six months. Or a year. Or longer. Would you be able to cope financially in that situation? What happens once your sick pay and savings run out – if you have them in the first place?
Most of us haven’t really thought about this happening to us. It’s easier not to. But if you have financial commitments or dependents, you probably should. It’s sensible to have a plan or protection in place in case you find yourself in this position. After all, it could happen to any of us. The good news is, there’s insurance you can buy to cover yourself in exactly this scenario – it’s called income protection.
What is income protection?
Income protection is an insurance policy that covers you in case you can’t work for medical reasons. This includes any physical or mental health reason that’s caused you to be signed off work by a doctor. If you need to claim, income protection pays out monthly, the idea being that it replaces part of your missing income if you can’t work.
There are two main types of income protection: short-term and long-term. The difference is that short-term cover only pays out for a fixed period of time (usually 1, 2 or 5 years), while long-term cover pays out for as long as you need it, until you’re well enough to go back to work or your policy ends. Short-term is the cheaper (but less comprehensive) option. Which one you go for depends on how likely you think it is that you’ll be off work for a long time (which is difficult to know), how much that situation could affect you financially, and how much you can afford to spend on insurance.
Good to know: income protection policies always come with a ‘waiting’ or ‘deferred’ period. This is how long you wait before your policy starts paying out after you’ve become unfit to work. This is another factor that affects the price – the longer the waiting period, the cheaper the premiums, and vice versa. Obviously, you’d need to support yourself financially during whichever waiting period you choose.
Who needs income protection?
Put simply: anyone who’d struggle financially if they couldn’t work for a long time because of illness or injury. Most people would struggle in this situation, at some point, so most of us could do with having some protection in place. It provides peace of mind that you could always keep up with the cost of life, even if you were too unwell to work.
Your financial commitments play a big part in whether or not you really need income protection. Have you got a mortgage or rent to pay? Plus other bills? And do you have anyone else who relies on you financially – like a partner or children? If so, being without an income could quickly cause difficulties at a time when you least need them.
Think you might need income protection? Then you might find this guide to the best income protection companies useful. It explains how to work out what kind of cover you’d need and gives you a rough idea of cost. Whether or not you decide to get cover depends entirely on your personal circumstances. For many people, the peace of mind it brings makes it worth having.