Opinion & Analysis
IPAW – Income protection: the insurance everyone needs
17 Aug 2021
So, why is income protection so important?
If you depend on your income to pay the bills or support your loved ones, you need income protection to protect you financially. An income protection insurance policy covers a certain percentage of your income during the time you’re unable to work.
Many people underestimate their risk of accident, illness or disability which can leave them financially unprepared and therefore it’s important to make sure you, and your income, are protected.
Why Get Income Protection
If you come to have a disability or are unable to work due to an accident or long term illness, you may be eligible to receive State benefits. However, it’s important to note that for the period 2021/22, the weekly Employment Support Allowance payment for a single person aged over 25 is £74.70 per week. Ask yourself if this amount is enough to protect you financially. If the answer is no, you may need additional coverage to help pay your living expenses if you are unable to work for a period of time.
You may already have, or be able to get, income protection through your workplace. Talk to your employer to understand what type of benefits are available to you; what level of sick pay does your employer pay and for how long? If you become ill or injured and are unable to work for several months, don’t assume your employer provides enough income protection coverage for you to support yourself and your family.
If you’re not covered through work, or if the amount of the coverage offered is not enough, you may supplement your insurance through an individual income protection policy.
Types of Income Protection
One of the more common questions people have about purchasing income protection insurance is around short-term vs. long-term cover.
- Short-Term income protection policies: This type of insurance kicks in fairly soon after you are unable to work due to a long term illness, accident or disability. Generally, they have a waiting period of 0 to 14 days with a maximum benefit period of no longer than two years. For instance, short-term income protection would be useful if you need a surgery to fix a broken arm and you won’t be able to work for a few weeks.
- Long-Term income protection policies: These have a waiting period of usually several weeks to several months with a maximum benefit period ranging from a few years to the rest of your life. If you’re looking at a longer recovery, or a more serious condition, this is where your long-term policy will come in. Common causes of long-term disabilityinclude:
- Back pain, or other joint and muscle issues.
- Illnesses such as cancer, stroke, or heart disease.
- Mental illnesses.
The Right Coverage for You
Income protection insurance is essential for all of us and it’s important to have enough coverage. Make sure to do your research and consider all your coverage needs. Assess how they fit in with your overall financial plan. Then, work with a financial adviser so you can get the best income protection coverage for your needs.
This article is based on an original article by the Council for Disability Awareness which is a nonprofit organization dedicated to educating the American public about the risk and consequences of experiencing an income-interrupting illness or injury. The CDA engages in research, communications, and educational activities that provide information and helpful resources to wage earners, employers, financial advisors, consultants, and others who are concerned about the personal and financial impact a disability, long term illness or accident can have on wage earners and their families. This does not constitute financial advice. IPTF thank CDA for their support in raising awareness of the importance of income protection.