How would you support your family or your lifestyle if you were signed off work sick? If you’ve ever thought about that, you’ve probably thought about Income Protection. But buying IP insurance is a minefield of complex questions and issues. Here are five questions you should consider before buying a policy.
1. What does my employment contract say about sick pay?
Most employers will continue to pay your salary for a set period whilst you are signed off sick. With an ordinary illness, you’d get a certain number of days off with no questions asked, then, after a period of say, a week, you’d need to get a doctor’s letter. But it’s important you check out your contract to see how long you’d get on full pay. It will vary from employer to employer. When your full pay period is up, if you’re still off sick, you’ll revert to Statutory Sick Pay which is currently £88.45 a week – which is likely to be a significant drop in income.
2. What savings do I have?
If you have a reasonable sum squirrelled away for a rainy day, savings can be an alternative to income protection – because at least you know you have that lump sum to get you by should things get tough. If you are lucky enough to own multiple properties and have rental income coming in, that’s another safety net which means you could save on Income Protection and look at Critical Illness instead.
3. Do I have any pre-existing conditions?
Some pre-existing conditions might be exempt from Income Protection cover so it’s worth knowing the situation before you buy. Providers will be looking for hereditary risks or your likelihood of having or developing a mental illness when making their judgements. Although it’s likely that some providers will accept a pre-existing condition, the premium will reflect their perceived level of risk.
4. Do I need Own Occupation cover?
Income Protection is especially important for those who are self-employed or freelance as there is no contractual sick pay to fall back on. If you’re a Professional, “own occupation” cover is essential. It means your policy will pay out if you’re unable to work specifically in your current role. Some policies won’t pay out if you are still able to do work of some kind – this means professionals who are high-earning and may not be able to return to their specific job but who may be capable of a lower-paid job would lose out. Do think seriously about “own occupation” cover if you feel this applies.
5. How long can I survive before needing to claim?
This is a good question to ask yourself if you are looking make a policy fit your budget. If you can afford it, you can have cover which pays out on your first day off sick, right through to retirement. However, if you can survive without your income for a period of time (or have an employer’s contribution which will tide you over) you can increase your deferment period (the time between becoming ill and the policy paying out) which will help reduce the cost.
I hope these questions have gone some way to highlighting some of the complexities you need to consider when buying Income Protection. Insurance brokers like myself are here to help you through these issues and ensure you know exactly what you are buying.
Remember, income protection is not the same as critical illness insurance – critical illness pays a lump sum on diagnosis of a specific serious illness only.
Please don’t hesitate to call if you have any questions. 0800 690 6990.