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How Income Protection Works

by GBAF mag

With an ever-changing economy and rising unemployment, protecting your income is essential. An income protection policy helps you ensure that you will be able to pay the rent or mortgage, pay for children’s school fees and so on. While these policies may give you temporary relief, you could find yourself struggling without them later. Here are some tips on finding the best income protection.

When searching for income protection, the first thing you need to understand is the difference between short-term policies and long-term ones. Short-term plans cover you for a set period of time – usually one month – up to a maximum benefit level. The insurer would deduct the benefit amount from your salary during this time, so that when you reach the age of 65, for example, you would receive the full benefit amount, rather than only a part of it. Short-term plans are useful for people who find themselves unemployed for a short time or who return to work part-time after losing a job. They are a good choice for you if you prefer to apply for and take out a policy on paper.

Long-term income protection covers you for longer periods of time. In general, you are guaranteed regular income support for a set period of time – typically around five years. However, this can vary depending on your circumstances and the insurance provider. If you become ill, have a serious accident or suffer from long term disease, you may have better cover than someone who remains fit and healthy. While illness and injury are the two most common reasons for obtaining long-term cover, you can also get it for the end of your marriage or if you become unemployed. You will also have more cover if you have a dependent, or a spouse who is financially supported.

If you become unemployed or lose your job through lay-offs, you can be made eligible for unemployment benefits immediately. This means that you would immediately start receiving an income protection cover until the benefit is taken out. If you are unable to return to work within the period of time allocated by the Department of Work and Employment, or if you are unable to find a new job within a similar period, you will be made eligible for longer-term income protection cover. You can extend the period of time for which you are receiving benefits for up to three years in certain circumstances. However, you will only get those benefits for a maximum of five years, and then you will have to wait for five more years before you can apply again.

If you are unable to continue working because of illness, injury or redundancy, or if you are suffering a long-standing medical condition, you may also be eligible for income protection. You will have to complete a medical assessment and write a report to the insurer, describing your current state. The insurer will pay you a lump sum, known as a benefit, once you have finished paying the benefit. Benefit levels will vary and will depend on how long you have been ill, the severity of your illness, your age and your financial needs. Benefit payments can start up as soon as you become genuinely ill, up to the maximum waiting period for NHS in England.

Income protection for workers is provided in two different forms – sickness pay and accident pay. Sick pay is available as a lump sum payment for up to twelve months following the illness, or up to twenty-four months if you have been off sick for longer. Accident pay is designed to replace your weekly wage for any weeks you are unable to work due to injury, illness or long-term illness. The cost of accident benefit depends on the level of coverage you have chosen, and your personal circumstances.

Another type of income protection is disability insurance. This provides income for an individual after they have stopped receiving benefits as a result of long-term illness. If you are under the age of sixty-five and cannot work, you may qualify for disability benefits. Some disability insurance policies will cover up to twelve months of income for a parent or partner who has become disabled. More commonly, income protection will pay out for a year after the disability has ceased.

Income protection is designed to ensure that you do not fall into financial hardship when your circumstances change. By helping you to continue to make payments for a long period, it helps you avoid financial problems as you become older. However, before taking out income protection, it is worth checking how much your monthly premiums would be. While you should be eligible for some benefit payments as a result of your workplace accident or sickness, it is never advisable to take out more than you need, as this could lead to higher monthly premiums.

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