As financial storm clouds gather around them, many people may be tempted to assume they will be able to rely on savings or the welfare state if they ever find themselves in a really sticky situation. But the reality is that job seekers’ allowance and disability benefits are in many cases less than £100 per week and are not designed to support a wide range of debt commitments that the typical household might have. Although it is easy to take an income for granted, many people recognise that it is the only way in which they are able to keep up with a number of financial commitments. Some even choose income protection as a way of providing a safety net should they ever find themselves without their wages.

Income protection insurance is a payment protection insurance product, and is designed to provide you with cash payouts should you find your income is stripped from you unfairly. This normally means you have lost it due to involuntary redundancy, long-term illness, or because you have suffered an injury after an accident which has kept you out of work.

Before someone does turn to the welfare system they might be able to rely on sick pay from an employer or on a redundancy package. But a redundancy deal can stretch to just a few days depending on your age and how long you have worked for the firm, and beyond the statutory limits an employer may withdraw your sick pay, which may leave you high and dry if you have a condition which requires a very long recovery period.

Income cover may be more effective as it is a type of insurance which agrees to pay you a proportion of your current income on a monthly basis after you make a successful claim. In this sense it takes away some of the stress associated with being out of work due to illness or involuntary redundancy, and the payments you get from it can normally be spread around a number of outgoings as you see fit. You may decide to spend some on a loan, some on groceries, and some on petrol, for example.

Income cover is different to a mortgage protection policy, which is designed to only support your outgoings on a mortgage should you fall on hard times. In this sense it is a broader type of cover which you can spread around almost anything you like, as opposed to a home loan protection policy which can only go towards the mortgage and associated costs

After you claim on an income protection policy you get a percentage of your regular income paid into your account, an amount which is agreed when you take out the policy. Your first payment will arrive between 30 and 90 days after your initial claim, and the payments continue either until you’re back in work again or until the payment period expires, with most paying out for 12 to 24 months.

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