Income Protection
Marty Naan talks us through income protection.
How does income protection work?
Income protection is absolutely my favourite type of protection – yet this is the one that usually gets left until last. I’m a little bit awkward as I always talk about it first, because everybody has a need for this type of cover.
Essentially, income protection is a kind of private sick pay. It pays you a monthly income until the end of a claim period. The client decides how long that will be – it could be short term, say a year, or it could be until retirement if you felt that was the type of policy that you wanted.
Do I need income protection insurance?
If you don’t have permanent, infinite sick pay, then you need income protection. Everyone should have it – if their last name isn’t Kardashian – because everyone needs an income.
How it works is specific to your circumstances. You might set it up to make sure you have sick pay for a year. Or, for your income protection not to kick in until after your employee sick pay runs out. These are the things that we would determine during a review, so that we can mould the policy around your needs.
What are the benefits of income protection? Is it worth it?
Whether it’s worth it depends on whether or not you have monthly bills – do you use electricity and gas? Do you eat food? Do you socialise? Do you have monthly commitments like childcare or broadband or Netflix? If you can answer no to those questions then maybe you don’t need income protection… and you’re very lucky.
But if you’re answering yes, then how would you pay for your lifestyle without any income? What happens when your sick pay runs out? Relying on state benefits is a very risky proposition and could mean serious reductions to your lifestyle. The money you get from state benefits is not much. You can look it up and – but wouldn’t you rather be in control of your spending than it be in control of you?
Is income protection tax deductible?
I’m not a tax specialist, but I know that the benefits payable under an income protection policy are typically free from UK income tax and capital gains tax, according to current law.
What am I not covered for under income protection?
As with any insurance, there are exclusions to a policy. A bit like critical illness, where there is a long list of illnesses that somebody is covered for, there’s also a list of exclusions on an income protection policy.
We would always explain those in detail during a client appointment, but I can give you some examples. It’s going to sound very morbid, but things like suicide and self-injury are not covered. Pre-existing conditions may not be covered, although that’s not an absolute. It depends on the age of the condition.
I would always explain this to a client in detail and ask questions to determine whether they’re covered or not. There’s no point in taking out a policy that you won’t be able to claim on. I always go through the full list of exclusions on any policy and make sure you fully understand it.
How much income protection do I need?
It depends on the client. The beauty of income protection is that it’s so flexible – you choose how much you need. Maybe you want to replace as much of your income as possible. You can’t replace everything, because then you’d never go back to work, so there are limits on how much you can protect.
Sometimes people want the maximum amount, while others will go for a lower figure to pay off certain monthly bills and commitments. Income Protection Policies are really flexible and fit round the choices that you make.
How long does income protection pay out for?
Again, this depends on the client and their needs. The starting point is to look at a policy that runs until you retire. If you’re off work sick, you could have money paid to you every month until either you retire or you go back to work.
You can also have short term options like one year or two years of income. It’s hard to know how long you want the policy to run for – you’re planning for something that hasn’t actually happened. It all comes back to sitting down for a review with somebody.
We take your preferences into account to find and recommend the policy that fits your needs. It’s flexible, so it can fit around you.
How much does income protection insurance cost?
There’s no cost for setting it up, and like the other options it will all depend on how much money you will need each month, when you want it to start paying out and how long for. It’s wholly driven by your preferences and your budget.
I always want to figure out how to maximise your budget and get the very best recommendation. We can also make changes to policies to work around a budget. For example, if I had a policy that was too expensive I can ask the client what cost would be comfortable. Then we’ll try and find something that fits that budget.
Having some protection is always better than having no protection. So hopefully when we work this through we can find a middle ground that’s a good solution for the client.
What else should we consider with income protection?
With any kind of protection, don’t do it yourself. It sounds like I’m just trying to drum up business – but it’s not about that. The intricacies of these types of insurance policies mean it’s really easy to end up applying for something that might not be the best for you.
The very first thing I do is establish your needs. I don’t talk about products or the cost of things – I need to figure out what you want to do, your end goal and your budget. We also compare different policies and providers. I have no loyalty to any one provider – I’m looking for the most cost-effective and best policy to fit you.
That ensures that you don’t just take the first policy that you see, but one that actually suits your situation. So my advice is to get advice. It means your needs will always be taken into account.
And, remember, there’s no cost to set up protection. You do not have to pay for that advice. So why wouldn’t you seek professional support?
Your home may be repossessed if you do not keep up with your mortgage repayments.
