Income Protection – the important cog in your financial wheel

7th July 2020

We all fund our lifestyle by spending our hard-earned income. This income is used to feed ourselves, to pay mortgages, to pay all the bills and to fund our lifestyles; new clothes, nights out and holidays etc. Our income is also used to pay our insurance premiums and hopefully to pay towards retirement planning! So what happens if we get sick or have an accident and this income stops? This is where income protection insurance comes in. A previous term used for this cover was Permanent Health Insurance(PHI).

What is income protection?
Income protection insurance is a product that in the event of you being unable to work due to illness or accident, the insurer will pay you a replacement income until your retirement date. Most Financial Brokers recognise the importance of maintaining an income and recommend to clients that they have adequate replacement income in place, should they be unable to work. For some lucky few individuals, their employer provides this salary protection cover. For most, they may end up reliant on modest state benefits. Indeed for the self-employed, they are entitled to nothing and as a result they really need to get their own income protection insurance in place.

Is income protection the same as payment protection on a mortgage or other loan?
In a word, no. They are not the same product. Payment protection is a product that was predominately offered by banks to cover repayments on a mortgage or loan. However this cover usually only lasted for a year or so and had quite strict conditions attached. In fact payment protection insurance has a very chequered history and indeed was sold to people who often would never be eligible to claim. You may often see in the media thatbanks are now being forced to refund customers for payment protection policies that were mis-sold in the past.

Income protection is completely different. It covers your income in the event of illness or accident and the benefit is payable until you recover and are able to work again. If you don’t recover, it is payable until you reach your retirement age. In fact the state are supportive of people taking out income protection insurance. You get full tax relief at your highest income tax rate on the premiums you pay. Now this is one of very few ways left to get marginal rate tax relief on anything!

How much does it cost?
Like most products, it depends. The premium that you pay will depend on a range of factors such as;
• Your age
• Your occupation
• Amount of cover needed
• Your state of health
• Your choices in relation to a range of policy features

Where do you start? The best way to proceed is to contact your Financial Broker who will explain all of the options available and will prepare an income protection quote for you. And because your Financial Broker is impartial and deals with all of the product providers, they will find the best product for you at the lowest price available. You can then rest easy, knowing that at least your income is secure.