We all know how important it is to ensure that we are financially protected against the loss or injury of those people and things that we cherish most. After all, we are obliged by law to have car insurance and indeed banks will only lend you money to buy a house if you have sufficient life cover in place. Most people then go further and protect their home and contents against damage or loss with house insurance, and also have additional life assurance to ensure their family is financially looked after, in the event of an early death.
All of these protections are kept in force by paying insurance premiums, which in turn are paid from the income that you earn. Your income also funds most of your day to day expenses and your lifestyle. However what would happen if you were unable to earn an income because of injury or ill health? Income protection insurance is all about taking care of your most valuable asset — your income.
How does it work?
If you’re unable to work because you’re sick or injured, income protection is there to provide you with a replacement income until you either get better and return to work or until retirement age if you don’t. The cover will commence after a “deferred period” which is like a waiting period that commences at the moment you are unable to work. After this period, the insurer pays your replacement income to you. This will be any amount up to 75% of your salary.
What you need to consider
First of all, you need to decide the right level of cover for you. This depends on a number of factors, a very important one being what cover if any, your employer will provide in the event of you being unable to work. There are many other factors to consider such as your occupation, your income, your state of health and when you would need your replacement cover to begin.
This cover also attracts income tax relief at your marginal rate of tax, which helps hugely in reducing the cost of this cover to you.
Deciding the right level and type of cover for you, and then finding the best policy is difficult. It is always best to talk to an independent financial adviser who will help you to identify the right cover for your particular circumstances and will then ensure that you get this cover at the lowest premium available to you.
At Lyons Financial Services we are experts in income protection insurance. We advise significant numbers of clients in both the public and private sectors on how best to protect their income in the event of illness or injury.