Insurance schemes can replace lost income

editorial image
Yachts taking part in last years Clipper Round the World Race			             	  Picture: onEdition

‘Team spirit’ will keep us buoyant on global challenge

0
Have your say

Suddenly becoming too sick to work can be a short cut to financial disaster.

With Statutory Sick Pay currently at a paltry £81.60 per week, government support averages only 38 per cent of income if you become too ill to work.

Income protection insurance is something of a Cinderella market, but there are four main products that can insure you against a sudden loss of earning power.

PAYMENT PROTECTION INSURANCE (PPI)

Typically will meet repayments on your credit and store card, mortgage, or loans if you’re certified sick for a period of around 12 months.

PROS: It can buy you peace of mind for periods of short-term sickness, by ensuring your regular payments are maintained if you are unable to cover them from income.

CONS: PPI policies have come under fire for industry mis-selling, and particularly problematic is their stability for the self-employed.

INCOME PROTECTION INSURANCE (IPS)

Also known as permanent health insurance – IPS is designed to replace part of your lost earnings if you are unable to work because of illness or disability.

PROS: A top option for the self-employed, it provides a tax free monthly payment of between 50 and 60 per cent of your usual earnings. The payments only cease once you are back at work or reach retirement age.

CONS: Does not pay out until a ‘deferred’ period has elapsed – usually four weeks. Exclusions can be rife for pre-medical conditions, and common problems like stress and anxiety are specifically excluded.

ACCIDENT, SICKNESS, AND UNEMPLOYMENT COVER (ASU)

Will provide a monthly income if you are unable to work if off sick, have an accident, or are made redundant.

PROS: Suitable for employees with short-term accident or sickness repayment problems as policies rarely exceed one or two years’ duration at most. Covers mortgage repayments as well as regular bills.

CONS: There is usually a ‘deferred’ or ‘waiting’ period before payments start.

CRITICAL ILLNESS COVER (CIC)

Provides a financial safety net in the form of a tax-free lump sum if you are diagnosed with a serious illness.

PROS: Can pay the bills in the event of a long-term or terminal medical condition.

CONS: Pricy, and a minefield of exclusions. Take a trusted broker’s advice before buying.