Income protection insurance may be a phrase which you find unfamiliar, but to many people it is a product which provides a vital lifeline in a crisis. Think of some of these circumstances - involuntary redundancy, illness over a long period or an injury following an accident. In the right conditions all of these things can lead to somebody losing their income quite quickly, leaving doubt over how the are going to keep up with all the regular debts and commitments which modern households have to deal with. Income cover would step in and help a person by giving them regular cash handouts, possibly mean the difference between hardship and getting by effectively.
Many people benefit from this kind of cover because the money they receive is not a loan. It is simply an insurance payout. So a policyholder who has had to claim due to involuntary redundancy, or a long-term illness, or an injury after an accident depriving them of their income will simply get the money to be used against their debts.
Normally a person can expect to effectively insure a proportion of their income, perhaps 50 per cent, meaning they would get, say, £600 a month payout after a successful claim if they earned £1,800 a month in their job. Payouts normally start between 30 and 90 days after they have actually lost their income, depending on the policy and level of cover selected. The payouts also normally continue for quite a while, with many policies stretching as long as 12 months. However, policies can be bought which ensure payouts up to 24 months after a claim.
Note you will not be able to claim if you have taken an offer of redundancy. You can also not expect to receive payouts if you try to claim on a medical problem which is self inflicted, IE drug or alcohol abuse. It is also important to consider what is known as pre-existing medical conditions, as most insurers will also not pay out against these, IE something which was diagnosed before the policy was bought.
However, many people find this form of insurance vital as they can spread the payouts however they wish, with many choosing to use a bit for a mortgage, a bit for a loan, and a bit for bills. There is normally no condition slapped on how you spend the cash, it is yours to do with as you wish and is tax-free.
As part of the payment protection insurance industry, income protection insurance has also been part of a sector which has attracted controversy. This has happened since some high profile companies were found to be mis-selling people policies, typically to customers who did not need them or who did not qualify for the insurance.
But concern over income protection insurance has been mainly focused on policies which were delivered at point of sale, meaning at the same time as someone was provided with a loan. By shopping around a number of companies who provide this cover independently, meaning they specialise in this type of insurance, you may get an effective policy at a great price.
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