A guide to insurance
Income protection insurance
Personal Finance and Savings
Income protection is designed to give you a regular tax-free benefit if you are injured or too ill to work, resulting in loss of earnings.
There are three main types of product available:
- Those designed to replace a proportion of your lost earnings;
- Those which cover some of your living expenses – for example, your mortgage;
- Those which provide cover for housepersons.
Your insurance company will have its own definition of incapacity. This could vary from being unable to do your own occupation, any occupation, carry out ‘activities of daily living or ‘activities of daily working’.
There will usually be a period after the start of incapacity before your benefit is paid. This is called the ‘deferred period’.
Insurance companies offering income protection will always limit your benefit to an amount less than your normal earnings because income protection benefits are free of personal income tax.
Income protection insurance is unnecessary if your employer has a satisfactory long-term sick-pay scheme, but important if you are self-employed or only get statutory sick pay from your employer.
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