Smarter money - income protection insurance


How would you cope if you lost your job or couldn't work because you were ill? Would you still be able to pay your mortgage and other bills? That's where income protection insurance can help.

There are different types of income protection insurance, which all provide slightly different cover, but all aim to help you cope financially in certain circumstances. There are some overlaps between the different types, so check before you buy, to make sure you don't pay for the same cover twice.

Remember if you are self-employed, or in a job offering limited or no sick pay, you may want to think very carefully if you could cope financially without any type of income protection insurance. Click on the links to find out more.

Mortgage payment protection

This aims to cover your monthly mortgage payments if you're made redundant or are too ill to work. This type of policy pays out for a limited period only - usually 12 or 24 months. If you need to claim there's normally a time period before you get your first payment, so you can tie this benefit into other types of cover you have, like sick pay from your job.

Key pros and cons of mortgage payment protection

pros

  • Worth thinking about if you've taken out your mortgage after October 1995 or have re-mortgaged since then, as you probably won't get any help from the state with your mortgage bills if you get into trouble.
  • May be good if you think paying your mortgage would be difficult if you were made redundant, or were too ill to work and you don't have any other protection to cover living expenses.
  • May be useful to think about if you are self-employed or don't have a job which has sick pay.

cons

  • Can be quite expensive.
  • It covers a specific debt - your mortgage, so you won't have extra money to provide for other things like food, clothing etc.
 

Making a claim

For information on making a claim visit our making a claim section.

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Credit insurance (or payment protection)

If you are made redundant or become too ill to work, this pays your monthly payments if you have a loan, or a set percentage of your monthly credit card. You may be offered credit insurance, sometimes called payment protection, when you take out a loan or get a new credit card.

Key pros and cons of credit insurance

pros

  • May be useful if you have large borrowings or would find it difficult to make your loan and credit card payments if you lost your job or were too ill to work.
  • Could be useful if you are self-employed, think you may lose your job, or your job doesn't provide sick pay.

cons

  • You'll normally only get pay outs for up to 12 months.
  • It only covers a specific debt - your loan or credit card payments, so you won't have extra money to provide for other things like food, clothing etc.
  • It can be expensive, and if you are in a secure job with sick pay, and your partner earns a wage, you may feel you can do without it.
 

Making a claim

For information on making a claim visit our making a claim section. Before you buy cover, check you are not already covered by another income protection policy, such as permanent health insurance.

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Accident, sickness and unemployment cover

With accident, sickness and unemployment policies, you pay for an amount of monthly cover - usually between £500 and £1,500 - and, if you lose your job or can't work, you get that amount of money each month to spend how you like. Policies usually pay out for up to a year or until you return to work, whichever happens first. It also usually pays a cash lump sum if you die or become disabled during the policy.

Key pros and cons of accident, sickness & unemployment

pros

  • If you think getting a limited amount of money for a few months is enough, this could be right for you.
  • Can be cheaper than other types of similar insurance.
  • It is up to you how you spend the money each month.

cons

  • The amount you are paid each month is limited - as is how long they'll pay out for - so if you have lots of bills, it may not be enough.
 

Making a claim

For information on making a claim visit our making a claim section.

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Permanent health insurance

Permanent health insurance aims to give you a replacement income if you can't work because you're sick or disabled. This can be anything up to three-quarters of your normal wage, less any state benefits you get and any other money you receive. For the self-employed, insurers usually base the level of cover on your taxable income. All pay-outs are tax free and usually continue until you recover or you reach your selected pension age - that's why this insurance is called permanent.

Key pros and cons of permanent health insurance

pros

  • Could be useful if you or your family relies on your wage to pay most bills and if you want the comfort of ongoing pay outs.
  • May be useful if you are self-employed.
  • It's up to you how you spend the money each month.

cons

  • This is one of the most expensive forms of this type of insurance.
  • If you are in a secure job with good sick pay and your partner also earns a wage, you may feel you don't need permanent health insurance.
 

Making a claim

For information on making a claim visit our making a claim section.

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Critical illness insurance

Critical illness insurance usually pays a one off, tax free lump sum, if you are diagnosed with a specified critical illness covered during the term of the policy. The range and types of critical illnesses covered vary from policy to policy, so check this before you buy. You can choose both the length of the policy and the level of cover, although restrictions may apply.

Key pros and cons of critical illness insurance

pros

  • It may be useful if you would like to protect yourself or your loved ones financially if you are diagnosed with a critical illness.
  • It is up to you how you spend the money each month.

cons

  • Not all critical illnesses will be covered under the policy, so check before you buy.
  • You are normally not covered for pre existing conditions.
 

Making a claim

For information on making a claim visit our making a claim section.

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