No-one likes to think about what would happen if they suddenly became very ill or suffered a serious injury or accident. A long lay off in hospital followed by an extended recovery period is not a pleasant topic to dwell on, but ignoring the possibilities could prove costly for anyone who has financial commitments such as debts. Failure to pay money back can have serious consequences and in some cases can even lead to the loss of someone’s home. This is why some people who owe money turn to forms of income payment protection.
A type of financial insurance, this form of cover effectively supports someone’s ability to keep up with commitments like credit cards and other bills should they suddenly lose their income through no fault of their own – be it through injury, ill health or involuntary redundancy. Once sick pay and other benefits expire, some people could effectively find themselves financially high and dry quite quickly, and this is why some turn to insurance to make sure they can keep going even in the event of a serious crisis.
In exchange for regular premiums, income payment protection will pay out tax free monthly sums to policyholders who make valid claims should they suddenly lose their incomes. It is not designed to replace 100 per cent of someone’s wages, but a good portion of them, with cover normally starting at the 50 per cent mark. Income payment protection should not be confused with income protection – a more long-term policy which replaces someone’s income for periods longer than the 12 to 24 month periods usually available with income payment protection.
Payments will normally start after an initial period of around a month has expired following the successful claim, although some policies will backdate payments. The cash can be used for any variety of reasons that the policyholder chooses – like keeping up with a store card, car loan or other debt.
Differing variations of income payment protection include mortgage payment protection insurance and loan payment protection insurance. Both operate in similar ways but are designed specifically for covering mortgage and loan commitments respectively – they will normally pay out in much the same manner following successful claims. Because not everyone’s circumstances are the same, policyholders can normally also choose to cover against just accident and sickness or just involuntary unemployment.
Simon Burgess is managing director of the independent payment protection provider British Insurance. He says: “Income payment protection can provide a crucial safety net for anyone worried about what they would do in a financial crisis. British Insurance can also provide flexible cover at prices often more affordable than high street insurers and lenders. In some cases policies can be bought for just a few pounds per £100 worth of cover, so peace of mind need not break the bank.”
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