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Income Protection Insurance - The state won't help you!
Published: 10th Aug 2010
Many people are confused as to what help they would receive from the government if they became unable to work due to an accident or sickness.
Many people fall into the trap of thinking the government will give them enough money to meet all their monthly commitments.
As long as you are off work for more than 4 days then you could be eligible for Statutory Sick Pay (SSP) . The standard rate of SSP as of 2010 is £79.15 which can help to pay bills and replace some lost income, but in most people's cases it won't even meet monthly mortgage payments, let alone pay for utilities, food and clothing. SSP is paid out for 28 weeks and after that you would have to rely on state benefits.
Many people are now considering Income Protection Insurance as a genuine alternative in protecting their current lifestyle. Income Protection pays out a monthly benefit should you be unable to work due to an accident or sickness, the amount paid per month is decided at the beginning of the contract and is usually defined as a maximum of 65% or the insured persons income before tax. While this may seem low the benefit is tax free so doesn't usually fall much short of the persons take home wage.
Income Protection does however have a wait before it pays out. This is known as a deferred period and is set at the beginning of the policy. They are typically 4, 8, 13, 26 and 52 weeks and the longer the deferred period the cheaper the monthly premium. The deferred periods can be used to take advantage of any sick pay from work as some public sector jobs pay out an employees full wage for 6 months. In this case the deferred period would be best to be 26 weeks to keep the premiums as low as possible.
In many cases Income Protection can be an invaluable product, however it can have an affect on state benefits so it's always worthwhile finding out what you are entitled to before putting a policy in place.