The income protection insurance gives you a tax free income in the event that you are unable to work because of injury or illness. There are a wide variety of policies available in the market which will give you a range of options for varying time periods. The income protection insurance is also known as permanent health insurance. Some insurers will offer short term policies which would even cover unemployment or redundancy. There are three main types of income protection policies:  

• Policies which are designed to replace a proportion of your income
• Policies designed to cover your mortgage and loan commitments
• Policies which cover house persons

  Points to consider before taking Income Protection  

• How much income protection cover do I need?
• Would I be able to afford the monthly premium?
• How long will my employer keep paying me and at what rate?
• How quickly will my earnings cease if I was self-employed?
• Remember that the income protection benefit is not subject to tax or national insurance
• Most insurance companies will cap the maximum amount of benefit to 65% of the income

  How does the policy work?

  You agree with your insurer on the definition of the word incapacity. This actually defines the agreement that you have with insurer who will pay you when one of the incapacity conditions are met. Following are some common incapacity definitions.

• Own Occupation: You can claim income protection as long as your incapacity prevents you from fulfilling you own occupation
• Any Occupation: You would be able to make a claim if your incapacity stops you from fulfilling any occupation whatsoever?
• Any Suited Occupation: You can claim income protection if your incapacity prevents you from fulfilling your own occupation, any other occupation that you are suited to, or defined in your policy
• Activities of Daily life: You can claim as long as you cannot carry out basic tasks of daily life such as washing, dressing up yourself etc

Income Protection Premiums  

Your premiums will pretty much depend on the definition of incapacity covered by your policy. In general there are three types of premiums available

• Reviewable Premiums: This type of premium will be reviewed at a future date. The premium starts of relatively low and the insurer will review it every few years. Some insurers will review the premium every one year or every five years to take into account your new circumstances
• Renewable Premiums: This type of premium is very similar to reviewable premium. The difference is that every time the policy comes up for renewal the premium is reviewed and the amount you pay can change
• Guaranteed Premiums: As the name suggests, these premiums do not change and are guaranteed to stay same for the duration of the policy which could be as long as 25 years. These premiums tend to be more expensive. Its always a good idea to check for how many years the guaranteed premium is for

Tips for Income Protection Insurance  

• Cheapest policy is not always the best policy as it may have many restrictions and limitations, and you might not be able to get the money when you really need it
• When choosing the amount of cover always take into account your extra income such as bonuses, overtime pay, or any other benefit in kind which goes towards the quality of your life
• Always check how long the policy will cover you for, some cheaper policies will only cover you for 12 months or so
• If you are self–employed you would probably want to take out ‘Day One’ Cover which pays you as soon as your income stops
• Another option is ‘Back to Day one’ cover where the insurr will only pay you if you are away from work for more than 31 days due to illness or injury. If you return to work within 31 days you will not get any money