Income Protection
Prospect Mortgage Services provide independent, sound and honest advice for your mortgage and protection needs.
How would you pay the bills if you couldn’t work?
Most of us don’t even want to think about it. Most can’t rely on savings to get them through. Over 20% of UK households do not save any of their income each month. Even though households on average in the UK have just over £6,500 in savings this could be quickly depleted.
Our income is our most valuable assett and should be one of the first things we protect, helping to ensure our monthly outgoings are covered
So how does it work?
To apply for an income protection plan you would usually need to be over 18 and be working either employed or self-employed for more than 16 hours per week.
The main objective of an income protection policy is to replace earnings lost through illness or disability without reducing the insured’s financial incentive to return to work (otherwise the policyholder would simply be content to draw benefits for the rest of the term).
All income protection policies therefore stipulate a maximum income benefit limit. Usually 60% – 70% of a person’s gross monthly earnings. This often works out at about 70% – 80% of a person’s monthly take home pay. Benefits from other income protection policies will usually be taken into account, and it is common for State incapacity benefit to be taken into account in calculating the benefit limit.
Under an Income Protection Plan an income benefit would be paid to you if you were unable to work because of disability caused by sickness or accident. The benefit is paid, basically, as compensation for loss of earnings.
How long do I have to wait?
The benefit will normally start at the end of an initial waiting (or deferred) period, which is normally 4, 8, 13, 26 or 52 weeks long. This waiting period before you receive the benefit is usually set depending on how much support you might receive from an employer. As an example, an employer might provide support to an employee of full pay for up to 6 months, whereas many others will be operating a statutory sick pay arrangement – so check this out carefully before deciding on your waiting period. The longer the waiting (deferred) period, the cheaper your premiums will be, but you will have to wait before you receive your money. The policy term is normally linked to your expected statutory retirement age.
How long do I get paid for?
Your benefit could be paid for as long as you are sick/injured during the policy term – this is called full term cover.
Alternatively, you could set up a policy with a limited payment term where the benefit is payable for a maximum set period (e.g. 2-years or 5-years). Usually, once you’ve gone back to work for a period of time (e.g. six months) you can claim again on a policy. In both cases, payments stop when you recover and return to work, you die or the policy term expires. The policy term is usually linked to your expected retirement age.
When can I claim?
You will receive your monthly benefit if you’re unable to perform your own job role due to ill health, accident or sickness. Usually, it is required that you are unable to do the main tasks of your occupation and that you aren’t doing any other paid or unpaid work. By main tasks these are generally the things which can’t reasonably be left out of your job role, by you or your employer. You aren’t expected to go back to work in a different occupation – for as long as you are unable to do your normal occupation; your policy will continue to pay out