An alternative insurance policy which may be better than Payment Protection Insurance is that of income protection insurance.
What is meant by income protection?
Income protection pays out a proportion of an individual’s income if they are unable to work due to such circumstances as an illness, a disability or an accident.
How much of my income will get paid out under income protection if I am unable to work?
If an individual is unable to work and has income protection in place they will usually receive a pay out of around 50% of their income.
Will I be covered by income protection if I am made redundant?
If an individual has been made redundant this will not be covered by income protection – if an individual wants to have cover in respect of being made redundant this can sometimes be added on to income protection but this will usually be done at additional cost.
In this situation it may be better for an individual to take out a separate policy to deal with loss of income due to redundancy.
How is income protection calculated?
Income protection will be calculated in much the same way as other insurance policies taking into account the specific circumstances of the individual person such as their age, gender, occupation, the current state of their health and whether they are a smoker or not.
How much an individual will have to pay in premiums will depend on how much of a high risk they are viewed as by the insurance company.
Why is income protection a better alternative than Payment Protection Insurance?
Income protection is viewed by many as a better solution that Payment Protection Insurance for the following reasons:
The cost versus benefits
Decision on when the cover starts
The duration of the income protection term
Te cost versus benefits
For most people when they take out income protection insurance they will be required to pay no more than they would do if they wished to take out Payment Protection Insurance but they will be provided with far more benefits.
Decision on when the cover starts
One of the main benefits cited when discussing the reason to choose income protection over payment protection insurance is that an individual who is the subject of the insurance cover can decide when the cover starts.
This means that they can decide if the cover is to start after four weeks, three months, six months or a year enabling the cover to be fit around the existing cover that is provided due to your employment status.
What does this mean in practice?
In practice this means that if an employer stops paying sick pay for an employee who has been absent from work due to illness after 28 weeks of that absence the individual can arrange for their income protection cover to start being paid from that date.
For more information on:
- Does this make a difference to the price of the premium?
- Duration of income protection
- What happens if an individual claims on the policy then returns back to work?
- Are there any disadvantages associated with income protection policies?
- Is there anything which can be done in these circumstances?
- Will payment under an income protection policy affect my state benefits?
- Can I obtain critical illness insurance as an alternative for income protection or payment protection insurance?
- What protection is provided by critical illness insurance?
- When will this prove to be useful cover?
- Why should it not be used as an alternative for Payment Protection or income protection?