Payment protection may be a phrase which rings alarm bells for some people, but for people who have had to claim on it, it may mean a lifeline. Income protection is just one section of this market, and is a method of guarding your ability to meet regular commitments should you ever find yourself high and dry and without employment unexpectedly.
Income protection, as the name suggests, guards your income in that it will provide you with an equivalent slice of it should you ever lose your job, until you’re back in work. To qualify for payments an insurer will normally require that you have ended up out of work due to illness, accident, or involuntary redundancy. All of these things in the long-term can leave you without that vital pay packet. However, bills will still need to be paid, and you may face mounting mortgage debts, and you may have other vital commitments.
An income protection policy would pay you a set amount on a regular basis, not as any kind of loan, but as simple insurance payouts, either until you are back working again or until the policy expires. Normally you can expect a percentage of what would have arrived in your account from your employer, perhaps 50 per cent. So anyone earning £1,800 would get £900 per month after claiming successfully on a policy. This will continue for 12 months, although some policies go all the way up to 24 months.
There is no condition normally put on how you spend this money. You can use it on bus fare to job interviews, new ties and suits, groceries, mobile phone bills, mortgage repayments, and just about anything. Your insurer will not be monitoring how you spend the money, and you are free to spread it around as you see fit.
Note you will not be able to claim if you accept an offer of redundancy from an employer, or if you are ill because of something which is self inflicted, such as drug or alcohol abuse. You will also not normally be able to claim on what is known as a pre-existing medical condition, normally classed as something which was diagnosed before a policy was bought.
Beyond this, income protection can be an invaluable safety net in a crisis. It is not designed to replace your regular income, but rather give you a helping hand until you’re back on your feet and firing on all cylinders again. In some cases it can be the difference between repossession and keeping your home, or could perhaps mean your credit rating remains undamaged, meaning you may still be able to get borrowing in future after you’re back in work again. Policies need not be expensive either - try some of the more standalone independent providers, who may be able to get you a cheaper deal and provide effective cover.
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