Insurance schemes can replace lost income

editorial image
Share this article
David Curwen, centre, hugs his mother with whom he wa sreunited. Completing the group is his brother Keith

THIS WEEK IN 1975: Reunited after 30 years – but only thanks to a kind stranger

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.