Income Payment Protection Insurance

Being self employed has all the great advantages but if you are in an accident then you should consider purchasing income protection insurance which pays a fixed amount each month to cover your expenses.

For many people they are unlikely to receive help from the government especially if they are a sole trader business so insurance against unforeseen circumstances can offer you peace of mind.

How Does Income Protection Work ?

Really it does what it says on the tin in that the insurance company will pay you a predetermined fixed amount if you satisfy the terms in the policy. The income protection insurance IPI policies used to be known as permanent health insurance policies.

Most policies only start to pay out after 30 days of you falling ill or have a disability which means you can not continue your normal daily work so it's not for short term coverage but for long term issues which affects your ability to bring income into your household.

Generally policies allow you to protect up to 50% of your monthly income but some allow more and of course the more income you protect in terms of absolute value the higher your monthly premiums will be.

As most insurance companies are relatively flexible you can choose for how long the insurance continues for whether it be for a year after you stop working, until retirement or with some policies until you die.

Why Have Protection Insurance at All ?

Of course it really depends on your circumstances and you should always seek professional advice but most people taking these policies simply can't rely on statutory sick pay from the government or their savings if they can not work due to illness or an accident.

These are not health insurance schemes as such and they won't pay out for hospital bills like other insurances do. They simply pay you a fixed sum each month based on the premiums you pay. They are also not mortgage protection schemes although of course you can pay your mortgage with the money you receive from the policy.

Accident Sickness Unemployment ASU Cover

Not everyone is self employed and regular PAYE employees can also protect their income against unemployment and their mortgage. These types of policies were sold in the 1990s generally to people who did not need them and the economy was strong but of course as times change the prospect of being made redundant or simply losing your job has increased so many people are not only taking out mortgage protection policies and unemployment cover but a combination of all is possible to protect against almost all eventualities.

Qualification for Cover

As with all insurance income protection is not available for everyone in every job type or industry. Generally if you are an employee you will need to be working at least 16 hours per week and if you are self employed have be doing this for six months or more. Generally these policies do not cover pre-existing conditions much like health insurance.

Income protection policies are classed as long term insurance under the Insurance Conduct of Business (ICOB) rules as defined by the Financial Services Authority (FSA). The policyholder can cancel the contract within 30 days and entitled to a full refund of any premiums paid.

Policy Restrictions

The policy also only pays out when you have an accident or fall ill and not for any other reason and it is therefore wise to check on your own policy what exclusions there are and when exactly they will pay out.

When you change your job for whatever reason you will need to inform the insurer of any changes in your circumstances. Many insurers make policies null and void if you have excluded vital information either in the application process or during your time since your policy has been accepted.

Likely Premiums Examples

Due to the nature of the insurance (in that it may be paying out 30 years of money to you if you fall ill) the premiums can be expensive. They will also increase rapidly as you get older as of course the risk is steadily increasing.

Here are a couple of examples which exclude unemployment cover. These are illustrative only and do not constitute an offer, contract or financial advice which you should seek yourself.

Premium Example 1

45 Year old earning a net £4,000 per month wanting to protect £2,000 salary - premium approximately £70 per month with cover starting from day 30.

Premium Example 2

35 Year old earning a net £4,000 per month wanting to protect £2,000 salary - premium approximately £55 per month with cover starting from day 30.

Premium Example 3

45 Year old earning a net £4,000 per month wanting to protect £2,000 salary - premium approximately £45 per month with cover starting from day 30.

Premium Example 4

35 Year old earning a net £3,000 per month wanting to protect £1,500 salary - premium approximately £45 per month with cover starting from day 30.

These rates will vary by insurer and by policy conditions so check when searching for income payment protection insurance quotes online before you commit.

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