Income insurance pays your bills when you have lost your job or are too sick to
work.
Many banks, building societies and credit companies offer income protection cover when you sign up for a loan, finance, credit or store card.
Taking the cover is optional – but before signing up, work out what you want from income protection.
Monthly benefits
This is the monthly benefit the protection cover pays out. Cover comes in to two types:
- Debt specific: which is a policy linked to a finance agreement, like a car loan, mortgage or credit card. Debt specific means the cover only pays out to cover the repayments linked to the finance agreement, and generally they go directly from the provider to the finance company.
- Non-debt specific: This is general payment protection cover anyone can take out, providing they meet the qualifying criteria. This also pays a monthly benefit, but the money is not linked to any particular loan agreement, so you make the decision how to spend it.
Cheap payment protection
Generally, it’s cheaper for most people to have a single non-debt specific income insurance with a standalone provider rather than take out a plan each time a finance agreement is signed for a number of reasons:
- It’s easier to manage one plan
- The policyholder has financial control
- Standalone providers often charge less for cover than a finance company
Working out the cover
Payment protection should cover all your important financial commitments. Paying these keeps your credit record clean, takes a way the threat of losing your home and reduces stress so you can concentrate on finding new work or recover fully from an accident without the worry of how to pay the bills.
The provider generally charges cover as an amount per £100 of cover.
For example, if you want to cover monthly bills of £850, the monthly premium – the amount paid to the provider – would be 8.5 x £amount of cover per £100.
To calculate how much income insurance is required, list your monthly outgoings like mortgage, rent, council tax, utilities, loans, credit cards and food.
Claiming
Different providers have different rules about claiming on payment insurance.
Most have a qualifying period that the policyholder has to sit out before receiving any money. This is generally 30 days, but can be 60 days or longer.
Policies pay out on:
- Accidents– if you have an injury as the result of an accident that prevents you from working
- Sickness – if you are in poor health from a condition that has developed since you took the policy out.
- Unemployment – only if you are involuntarily made redundant or under special rules if you are self-employed.
Income insurance does not pay out for self-inflicted problems like drug abuse, alcohol abuse, taking voluntary redundancy or walking out on your job.
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