Income protection insurance could help you avoid debt and arrears with repayments and essential outgoings in the event that you are made involuntarily redundant or become unable to work due to accident or illness, by paying out a monthly sum. You would be able to insure up to so much of your own monthly income and the provider would have to agree to this amount. Generally you could choose to cover up to half of your gross monthly income or £1,500 whichever amount was the least. This income is paid back each month for up to the term once a period of deferment had been reached. These terms can vary so have to be checked when comparing the cost of the policy.
Your provider might offer to payout on your income payment protection insurance once you had been redundant or incapacitated for a period of just 30 days and with others this might be up to 90. However bear in mind that you could have to manage without an income for 3 months if you cannot claim until the 90th day on your policy. This could mean that you would need to struggle to find money to continue paying your rent each month, your utility bills and even to put food on the table for your family. With the income from the policy you would have the income to maintain these repayments and more. You might have this tax free income to rely on for up to 12 months with some providers and with others the benefits could continue for up to the 24th month. If you were taking out cover that would payout for up to the 24th month then you would pay more for the monthly premiums.
Income protection insurance can be confusing as there are two policies which have similar names. The policy outlined above is actually called payment protection insurance. The other policy, income protection, pays out for incapacity, but not unemployment, and would continue for up to the age of your retirement if this was necessary. So always ensure that you are applying for the right type of policy.
You might take out a policy that would payout if you were to suffer from either redundancy or unemployment. You can then make a claim for either event if it was needed. If you wanted then you could just take out redundancy protection. This could come in useful if you have a good sick pay plan at work. You could just take out incapacity alone if this should suit your lifestyle more. If you have chosen a very generous payment protection provider then you could also be eligible to claim if you were to have to give up your full time job to stay at home and nurse a family member back to health.
Income protection insurance could be a better solution towards helping you keep up with your essential outgoings than relying on any savings or the State for help. If you were to claim an income from the State you might find that the income you are entitled to could fall short of your usual income which could still leave you struggling. Should savings be your back up plan then you might find that your unemployment or incapacity outlasts your savings. This would of course mean that you still have to struggle to find the money for your outgoings while having gone through many years of life savings.
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