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What is an Income Protection Insurance Policy and how does it work?

What is an income protection policy and how does it work? In a nutshell, this insurance protects your income against the unexpected happening. Certainly, none of us know what is around the corner and when it comes to falling victim to redundancy or becoming too ill to work due to accident or long term sickness, this is especially so. Stop to think for one moment as to how you would cope if one of these events happened to you. Without a regular monthly income, how would you manage financially with the demands of your mortgage / rent, utility and other bills?

This is where an income protection insurance policy can step in and provide a monthly cash sum to see you through a difficult financial time. It allows you to continue meeting your financial commitments while you recover or seek alternative employment.

In the event that you are involuntarily made redundant or are unable to work due to incapacity, an income payment protection insurance (to give it its full name) provides a financial safety net that can be used for whatever purpose you wish. The aim of the policy is to provide you with an income when yours is lost.

When can I claim?

Policy features and benefits vary among the different providers, but typically, you will be able to make a claim on your policy anywhere from 30 - 90 days after you become unemployed or incapacitated (please check with your provider). Policy features and benefits do vary among the providers. Going for a longer waiting period would reduce the monthly premium however it also extends the period you need to wait before any benefit is due to be paid. You must assess if the reduction in premium is worth the delayed benefit and also if you could financially last until the benefit is paid.

The cost

What about the cost, is it high? The payment protection insurance industry has been in the spotlight a lot over the last few years' with media reports of the high street banks and lenders often charging exorbitant premiums for this cover as well as selling it to people who are not eligible to claim on the policy.

The positive side to this is that it has brought a new awareness to the industry and many consumers are now aware that they can shop around among the standalone providers for their income protection insurance and get a good deal.

By 'standalone providers' we mean those companies that sell the insurance independently of any borrowing such as loan or mortgage, such as SafetyFirst.co.uk. These providers often tend to be much cheaper than their High Street counterparts and, because they are selling the policy independently of any borrowing, they are focused on finding cover that best suits your personal circumstances.

Again, because of the media coverage, consumers are also more aware of the pitfalls ie where and when they are not eligible to make a claim under this cover. Typically this will be people in part time employment; of retirement age; and those with a pre-existing medical condition. Always seek professional advice of you think this may apply to you.

In summary, there is no doubt that an income protection insurance policy can be a financial lifeline at an already stressful time. By shopping around now for the best deal and ensuring the cover is right for you, you can protect your finances against the unknown.