Maintaining a steady, and hopefully increasing, income stream is a priority for many of us.
This is where income protection (IP) comes in. It can offer peace of mind.
Not to be confused with payment protection insurance, IP is an integral part of the financial planning process and with the paucity of state benefits available, having a back-up plan is essential.
Nick Barber, London
An income protection policy can help to replace a portion of your income, tax-free, in the event you are unable to work due to illness.
There will be an initial period before the benefit is paid out, full policies will then pay out an income to your retirement date. Some more cost effective plans will pay out for 2 years.
Income protection policies are comprehensively underwritten up front. They do not contain standard exclusions.
On average over 90% of claims are paid by insurers. Where necessary, insurers will request a report from your doctor or for you to undergo a medical examination, these are paid for by the insurer.
A tax-free income is paid at the claim stage; so we generally insure for no more than 50% of your gross income.
Standard occupations will normally need to be insured on an ‘own occupation’ basis.
This means, if you were unable to perform your own job the benefit will be paid.
Higher risk occupations will usually be assigned a definition relating to you being able to complete work-related tasks.
This is a particularly important area should you be self employed and if you are a director of a limited company.
We can set up your income protection with tax efficiency in mind. This can help protect your company earnings as well as giving you peace of mind.
How would you pay your mortgage in the event of accident, sickness or redundancy?
Short term income protection cover, mortgage payment protection insurance, can be useful.
It can be especially effective for older clients and those in high-risk occupations.
However, mortgage payment protection will include clauses to exclude previous and existing conditions.
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