Explaining income payment protection insurance
- 17TH JUNE 2007
The majority of us need to work in order to enjoy life’s luxuries. Very few of us are rich enough to enjoy a work free existence and those who are unable to work seldom reach a satisfactory level of living if they have to survive on state benefits.
So working and life’s luxury are often directly connected. In fact many would say that working and affording basic necessities are directly connected says Simon Burgess from British Insurance.
This relationship between work and level of living means that if we became unable to work and lost our income then our living standard would be reduced. How long could you and your dependents survive without your or your partner’s income coming in. What would your live style be like if you were forced to survive on state benefit and how much would you qualify for?
Yes we can all cut down on what we spend but in today’s world it is surprising how much of our every day living cost has become a regular financial commitment. The mortgage, the loan, the credit card, the family day out, the kid’s clubs and sports, the pets, the car, the take away and the annual holiday.
We all try to put something away for that rainy day but how far would that realistically stretch.
At this point we need to introduce income payment protection insurance which is designed to provide some measure of protection. These policies provide a monthly benefit which is payable if you are unable to work as a direct result of accident, sickness or can not work or get work due to involuntary unemployment. Payment of benefits is usually limited to a maximum period of 12 months.
You select the monthly benefit you wish to insure subject to a maximum monthly limit set by insurers which can be something like £1,000 or 50% of your monthly income. You will need to complete a simple application form however premiums are set as a flat rate so the application form generally checks you fit the eligibility requirements for the cover.
Premiums are usually set at £x per month premium for every £100 of monthly benefit insured. The application does not go into medical condition or smoking habits or life style questions.
Whilst the cover does not give full protection, the benefit can only be paid out for 12 months, the cost is reasonable especially if you shop around and perhaps find a specialist provider on the internet where overheads are low. These specialist providers will often let you choose between purchasing both accident and sickness cover or involuntary unemployment cover or all sections if you wish. This can be useful if one of the sections of cover it not very suitable for your needs.
Income payment protection insurance is not suitable for everyone and you need to give it some thought and consideration.
You may be in a job where your employer already provides you with working terms where you will continue to receive your salary even if you are unable to work for up to six months.
The policies contain a ‘previous disability’ exclusion (a medical condition you suffered from before the start of the cover) and a ‘chronic condition’ exclusion (long-term illnesses or medical conditions which are unlikely to be curable). If you suffer from either of these to a level where they are most likely to be the cause of future inability to work then the cover will be of much less value.
Bad backs and stress related claims require certain medical consultant’s authentication before they will be accepted.
For the self-employed being unable to work due to unemployment normally requires that your company cease trading and be in the process of being wound up. So the policy will not cover a dry period with no work coming in or the firm simply not having enough orders for you to receive any income.
For employed people the unemployment must be totally involuntary. That means that voluntary redundancy is excluded and also taking early retirement. Loosing your job partly due to misconduct is also excluded. Seasonal work ending is excluded.
Always read the policy summary and policy wording to check that the cover is suitable for you. Finally there is another product with a similar title called ‘income protection’ and sometimes incorrectly called ‘income payment protection’. That product is more expensive and only covers unemployment caused by accident or sickness however it will pay much longer benefit periods.
