If you’re self-employed you will have a particular need for income protection insurance (IPI) as you don’t have an employer to look after you and state benefits are severely limited.
Income protection insurance is designed to provide replacement income for people who are working and need continuing income if they are unable to work through long-term disability or illness.
Chris Sadler, an independent financial advisor with Chesterfield-based Jones & Co, outlines the key benefits of taking out an income protection insurance plan.
“The plan is usually written to the individual’s retirement date and the benefit is paid as income, which is tax-free if paid direct to the insured person.
“Income protection insurance provides peace of mind and the income will be paid until recovery or the end of the policy term, whichever is the earlier.
Underwriting is primarily based on your age, health, sex and occupation. Some risky hobbies, occupations and pursuits might lead to increased rates or refusal if they are felt to pose an increased chance of claims.
“I always start by understanding how the income protection insurance policy can be of benefit to my client’s personal circumstance, so I can then liaise with providers and underwriters to create a tailor-made plan. The use of exclusions is more common on IPI than life policies. These are used for certain situations rather than an increased premium. Typical exclusions would be pre-existing conditions, injuries suffered because of specific activities like climbing, diving etc or self-inflicted injury.
“The maximum benefit will vary from company to company, but it is generally between 50 per cent and 60 per cent of pre-disability income. Bear in mind that the limits apply to benefits from all IPI policies – taking out six policies doesn’t mean six lots of maximum benefit!
“Income protection insurance cannot be cancelled by the insurer as long as premiums are paid regularly, irrespective of health. They provide real value and relevance to anyone who suffers a serious illness or injury, and doesn’t want to worry about how they’ll pay the bills while their off work”