By taking out income protection insurance you would be guaranteed a tax-free replacement income up to the age of retirement if necessary, providing you had checked the exclusions. Your income would payout in the case of you becoming unable to work after becoming ill or suffering from an accident or illness. However it would not payout if you became a victim of redundancy. If you want to protect for this then you need income payment protection.
Protecting your income makes a great deal of sense when you consider how much you rely on it. One of the main outgoings that all homeowners have to make is their mortgage and if you cannot then you are risking losing your home to the lender. Just one missed payment will see them sending out a letter and if you continue and cannot catch up on the arrears while also paying your regular payments they will take you to court. Of course there are also many other factors where your monthly income would be missed.
If you have loan or credit card repayments to keep up with then where would you get the money if you did not have an income? If you had taken out a secured loan against your home then again your home is at risk. If unsecured arrears occur the lender could take you to court and you could have your belongings taken to pay what you owe the lender. At the very least you would earn a bad credit rating and as all lenders look at this first when deciding whether to approve you for the loan or not, the chances of you getting credit are very slim. Income protection insurance and income payment protection would allow you to pay all of these without worry.
You would also be able to meet all other outgoings such as keeping food on the table and paying for the heating and lighting in your home. You would not have to worry about cutting down and making drastic changes to your lifestyle. Income payment protection would payout from between the 30th/90th day of you becoming unemployed or incapacitated and would then continue for between 12/24months, providing you with a payment each month. After this period of time it would then cease as it is assumed you would have had time to recover of find work again. However income protection insurance would pay far longer after a longer deferment period.
It is essential not to get income protection insurance and income payment protection mixed up as they are two different policies. Income payment protection is the insurance you need if you want to claim over the shorter period and claim against accident, sickness and unemployment. All policies are cheaper when taken out with a specialist offering payment protection as opposed to taking on the policy with the lender on the high street. Premiums for payment protection policies are usually based on the amount of income you want to insure against and age. All providers will set a limit as to how much of your monthly income you are able to insure against and this is found in the terms before taking out the policy.
Simon Burgess is Managing Director of the award-winning British Insurance, a specialist provider of income protection insurance. |
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