Income protection insurance would protect your essential outgoings as the policy would provide you with an income if you became unemployed or incapacitated. If you suffered from either of these events you still have to find money from somewhere to continue meeting your essential repayments such as rent and your utility bills, even your grocery bill for the month. With a policy behind you there would be an income coming into the home which you would use towards meeting your outgoings.
To take out a policy you should be aware that there are two types of income cover you can take. You can take out income payment protection which is the one we are discussing here or you can take out income protection, however both are generally called income protection insurance. Income payment protection would payout an income over 12 or 24 months, if you needed it and you could claim an income for incapacity or unemployment. There would be a deferment period, which is the amount of time that you would have to stand too before being eligible to claim on your claim. The other policy would continue supplying benefits for up to your retirement age if needed but would not pay out in the event of unemployment, just incapacity. The income you receive back from your policy would be the amount you chose to protect at the time of you taking out the insurance and would be paid back as tax free income.
You could take out income insurance (income payment protection) to cover redundancy and incapacity in the same policy. You could also choose just to protect your repayments against unemployment alone or just take out your protection for incapacity alone. Your chosen events would go towards how much you paid out in premiums for your policy so you only need to pay for insurance you actually want. You should also check with the provider you take the cover with as you could be eligible to make a claim on the protection in the event that you had to stop working full time to take care of a close member of the family who was the one to suffer incapacity. Only the most generous of providers would give you this opportunity so find this out before taking out your cover.
You also have to check the policy to find out if you would be eligible to make a claim on the insurance. Income protection insurance would come with some exclusions and these have to be checked against your lifestyle so that you know you can claim. Providers could include just the most basic of exclusions but others might add in many more. For instance you would need to be in full time work and have been working full time for a certain period of time, which can usually be 6 months. You would also need to check the wording of the policy very carefully if you suffer an illness which is ongoing as generally you would not be eligible to claim on the insurance if you were to have to give up work due to that illness. Self-employment conditions should also be checked too.
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