Explaining income protection insurance
- 13TH JULY 2007
You can have as much natural ability and ambition as you like, but if your health prevents you from going to work for any length of time the chances of realising your career objectives are decidedly slim.
Indeed, unless you have a highly generous sick pay package at work or are fortunate enough to have a private income, having long-term health problems may involve living off state benefits, which will never enable you to do much more than exist.
The good news, however, is that you now have more options than ever before for the purposes of insuring against losing your income through ill health. Three different forms of income protection insurance will pay out a regular monthly tax-free benefit if you are unable to work as a result of illness or injury.
Advisory income protection insurance is the most complex option and, as its title suggests, needs to be bought in conjunction with objective professional advice. Our service can provide prompt access to health insurance experts who can select the policy most suited to your needs from a broad panel of leading providers.
The insurers that offer advisory income protection insurance require applicants to be individually underwritten, which means that they can be quoted wildly different prices according to factors such as age, gender, smoking habits and – most importantly of all – occupation. The underwriting process also means that cover can sometimes take several weeks to arrange.
However, advisory income protection insurance can be extremely good value for those who the underwriters do not regard as constituting above average risks. Although claims benefit payments do not normally start until after an initial exclusion period of either three or six months, they continue until you are well enough to return to work or, if you never recover, until the end of the policy term – which is usually your intended retirement date.
Long-term income protection insurance, on the other hand, involves no time consuming initial underwriting and can be arranged instantly. All policyholders pay the same flat rate and factors such as age, gender, occupation and smoking habits are disregarded.
Claims benefit payments are not subject to an initial exclusion period. They start as soon as you are unable to work on health grounds for 30 consecutive days, and backdate to day one. They continue until you are able to return to work or, if you never recover, until your 60th birthday or until the end of the policy’s 30 year term, whichever is sooner.
The cover is attractively simple to understand and does not require the services of an expert adviser. It can sometimes be better value than advisory income protection insurance, especially for those poorer risks who are given substantial premium loadings by advisory income protection insurers.
Short-term income protection insurance, the third option, may be of interest to the small proportion of applicants that are declined for the longer-term covers. It works along similar lines to long-term income protection insurance but only pays out claims benefit for an absolute maximum of 12 months.
