What Income Protection is and what it is not

As financial advisers helping our clients to build a better financial future for themselves, we are talking to clients every day about a whole range of issues in relation to their personal finances. With some clients, we are helping them with their retirement planning and to build diversified and risk adjusted investment portfolios. We also help our clients to protect themselves against a range of possible catastrophic events, from ill-health to death.

However we are sometimes concerned when we hear people talking about income protection, as they often don’t do it justice or sometimes don’t appear to fully understand it. Some think that they have income protection in place, while in fact having some other form of lower value cover. In these situations, we always sit them down and give them the A to Z on income protection, ensuring a full understanding of this really important protection product.

But to help you in the meantime, here goes on a whistle-stop description of what income protection is and what it isn’t.

Income protection is…

• It is protection against being unable to work due to illness or accident. So it relates to your physical capacity to carry out your work. When taking out an income protection policy, you choose a deferred period. This is effectively a waiting period of anywhere from 4 to 52 weeks before your claim becomes payable. The longer the deferred period, the cheaper the premium.
• Income protection is a replacement income. The insurance company effectively steps into the shoes of your employer / self employment and pays you your regular income instead, at your income protection benefit level. You will submit your tax credit certificate to the insurance company and they will pay you as a PAYE worker.
• Income protection is a benefit that continues to be paid until your retirement date. So it ensures that your income is maintained right up until the end of your working life. Of course if you recover in the meantime and return to work, the benefit ceases, as your employer / self employment then replaces the insurance company again as the payer of your regular income.
• Income protection is a fully tax relievable expense, so you can reduce your tax bill at your marginal rate by paying for income protection.

Income protection is not

• It is not a lump sum payment if you fall ill. There is no once-off windfall payment, instead it is a regular (and often far more valuable) monthly payment until you retire. If it’s the protection of a lump sum you want in the event of illness, talk to us about Specified Illness Cover.
• Income protection is not restricted to a list of specific illnesses. Claims are paid on your inability to work due to illness or accident, whatever the cause might be.
• Income protection is not protection against redundancy. Claims are only payable when you are unable to work due to illness or accident.
• Income protection is not an income for life, it is payable until you get better or until your retirement age.  However with most income protection policies, you can also choose to protect your pension contributions as well, thereby ensuring that your post-retirement planning and income stays on track.

Income protection is often known as the glue within a financial portfolio. Without income, everything is at risk – your mortgage, your pension, your other financial commitments. Now might just be the time to talk to us about securing your future income, and your peace of mind.