10 Income Protection Insurance Myths
As a long term protection product, Income Protection Insurance is designed to provide a policyholder with a guaranteed monthly income should they suffer an extended absence from their work place due to sickness or an accident. However, as with many protection products including Life Insurance and Income Protection there are many common myths about what a policy will protect and what will not be covered.
In today’s guide we take a look at 10 of the most common misconceptions that have been asked by our website visitors and customers.
By choosing to purchase an Income Protection policy is a sensible precaution that many households could benefit from for the benefit of loved ones who are reliant on them. Before choosing to either obtain a policy or research a policy in the future, why not ask yourself the following questions:
If you faced a significant reduction in income for say three months or longer due to illness or injury.
Could you cope financially with the mortgage or rent?
Household bills, credit cards, loans?
Unexpected financial expenditure?
Work Related Statistics
Because 2020-2022 has been impacted by the global pandemic, we have taken a look at the previous years to obtain relevant statistics. Information obtained from the Health & Safety Executive website confirm that in 2019/20 38.8 million work days were lost due to illness and work place injuries. The main causes of days lost due to work-related ill health in 2019/20 were:
Stress, depression or anxiety: 17.9 Million
Musculoskeletal disorders: 8.9 Million
Types Of Insurance By Household Statistics
Similar to the Health & Safety Executive, the ABI (association of British Insurers) does not have consistent data for 2020-2022. Therefore their most recent data for household statistics relates to 2018-2019. Of the policies purchased by the 26.5 million households in the UK, compulsory motor Insurance has been purchased the most.
Other types of short term Insurance include:
Motor Insurance: 20 million
Contents Insurance: 19.3 million
Buildings Insurance: 16.5 million
Mortgage Protection: 2.8 million
Private Medical Insurance: 1.6 million
However, the statistics suggest that longer term protection policies do not have the same level of households obtaining policies which they may require for the future. It is possible that many households are hesitant about buying longer term Insurance due to common myths and policy misconceptions. As detailed below approximately 2% of UK households had obtained Income Protection and the remaining 98% could be at risk of financial difficulties if they had a work place accident or long term sickness.
Long term protection products by household:
Whole of Life Insurance: 4.8 million
Term Life Insurance: 0.6 million
Income Protection: 0.2 million
After going through the statistics from the Health & Safety Executive and the ABI. Our helpful guide into 10 Common Income Protection Insurance Myths will help you find the correct information about longer term protection policies:
Income Protection Insurance Is Not Important
For some people they may consider Income Protection a waste of money and that it is not important to purchase. Although many would agree that all adults do take their health for granted and often overlook illnesses or think it will not happen to them. However, by taking into account the loss of 32.8 million working days in 2019/20, perhaps Income Protection might be more important than you think.
The monthly premium cost of an Income Protection policy can cost much less than you think and with the right level of cover it will ensure you receive between 50% and 70% of your normal income. By using an FCA regulated broker, like Protect Income Insurance to compare policies from all of the UK insurers to find the best policy for you, can help protect you if you have a lengthy absence from work due to illness or injury.
An Income Protection Policy Covers Redundancy
This common misconception can cause many policyholders to be disappointed if they are made redundant and find their claim being declined. To clarify quite plainly, an Income Protection policy will not cover redundancy. The key purpose of an Income Protection is to provide the policyholder with a regular income if they are off work for any length of time due to sickness or an accident. The main confusion for many people is this type of cover with payment protection insurance (PPI) or mortgage payment protection insurance (MPPI). Both payment protection insurance and mortgage protection insurance cover specific repayment commitments you may have to meet including credit cards, mortgages, car finance and other purchases. Claim payments against PPI and MPPI usually stop after a fixed period which is usually between 12 and 24 months.
An Income Protection policy is not limited to cover the costs of specific items and can be used as you choose. The correct level of protective cover will provide a significant proportion of your normal income as monthly payments. This will mean that you can receive between 50-70% of your normal working income and continue to be paid until you are able to return to work, or until you retire if your illness/accident determines that you can no longer work.
State Benefits Will Be Enough To See Me Through
Although it is true, the UK does have one of the best benefits system in the world, it is also quite restrictive on the level of support that it can offer. The current weekly amount that a person could receive on Statutory Sick Pay (SSP) is £96.35 prior to deductions for tax and national insurance for a maximum of 28 weeks. Although extremely beneficial to help with the basic costs of living, it can be a very stressful time due to the drop in monthly income. You may also be entitled to some sick pay from your employer which will also help, but this is usually only paid for a limited period of time.
By choosing to protect your household income with Income Protection Insurance you have the knowledge that you will provide yourself with a significant proportion of your normal monthly income. Rather than relying on Statutory Sick Pay (SSP) and being unable to maintain a usual standard of living because of a reduced income. An Income Protection policy will provide up to 70% of your monthly income paid to you as tax-free benefits every month until you are ready to return to work or to retire, whichever comes first.
Income Protection Is Very Expensive
Many households constantly review their monthly budgets as advised by parents and individuals like Martin Lewis. It is important to regularly review your household and make savings and investments whenever possible. An often overlooked part of the budgeting process is the assumption that your monthly financial income will remain in place, therefore it is logical to explore different ways to protect the most valuable part of your monthly budget.
By doing a little research you will soon discover that an Income Protection policy is not necessarily as expensive as you might assume. Many policies provide flexibility to make monthly premiums more affordable and within your household budget. The most common way to reduce the monthly premium is to defer the waiting period prior to receiving your monthly claim payments.
By using an FCA regulated broker, like Protect Income Insurance can help you to find a monthly premium that both protects you and is affordable. Choosing to compare Income Protection Insurance Quotes from all of the UK providers in one simple search, will help save you time and money to get the protective policy for you and your family.
I Don’t Need A Policy, It Won’t Happen To Me
It is human nature for many adults to assume that if we are in good health currently, that it is unlikely to change for the foreseeable future. However, as the data from the Health & Safety Executive suggests that this could be a rather complacent outlook.
As the research shows, the reality is that there are more people who are losing working days due to long term illnesses and accidents. Therefore spending a few moments to look into protecting your income for the future is one way to make sure that you have a sufficient monthly income to cope during any extended period of absence from work
My Insurance Policy Won’t Pay-Out
Following the annual report from the ABI for 2019/2020 detailing the different types of longer term protection policies that have received claims. The assumption that an Income Protection policy will not pay-out is a misconception:
Critical Illness: 91.3%
Life Insurance: 97.0%
Total Permanent Disability: 66.4%
Whole of Life Insurance: 99.99%
Income Protection: 86.5%
As confirmed by the Association of British Insurers, the key reason that Income Protection Insurance claims had not been settled was due to issues when purchasing a policy. So provided that you have paid your monthly premiums and provided correct personal information when you took out the policy, your claim should be successful.
It is very important to inform your Income Protection Insurer if your income or circumstances has changed as you could be over/under insured. If your income or circumstances has changed the amount of benefit under a policy will need to be adjusted to ensure you aren’t paying a higher premium than you need to. By reviewing your Income Protection Insurance with an FCA regulated broker, like Protect Income Insurance will ensure that your policy remains affordable and best reflects your financial situation.
My PPI Policy Will Cover It All
Although both types of protective cover may sound similar, the stark reality is that both types of Insurance are different in how they protect you. A PPI policy is usually is taken out to protect against the risk of you not being able to maintain repayments on loans or Credit Cards. Therefore a PPI policy is very restrictive and will only help with debt repayments.
However, by obtaining an Income Protection policy that does not have the same restrictions and will allow you to cover household bills including food, fuel, utilities, clothes and any other household expense. If your income drops significantly due to sickness or an accident an Income Protection policy will provide you with a tax-free monthly benefit ranging from 50-70% of your monthly income to help you maintain your lifestyle through any extended period of absence from work.
I Am Self-Employed So I Cannot Get Income Protection Cover
Further to our extensive guide on the importance of Income Protection for the self-employed, there are many providers who can offer protective policies. Choosing to have this type of cover as a self-employed individual is more important than an employed individual, because they do not have the benefit of absence cover from their employer. As a self-employed individual who may face a lengthy absence due to sickness or an accident, you may only have the state benefits to fall back on.
By using an FCA regulated broker, like Protect Income Insurance to compare quotes and search all of the UK insurers for self-employed Income Protection. Will help you to find the most cost effective policy available which will cover between 50% and 70% of your profit before tax. A key point to remember is to ensure that you cover a percentage of your profit rather than the revenue of your business because this will avoid you over-insuring.
By doing extensive research or by using a regulated broker like Protect Income Protection can ensure that you have the financial security for the future.
There Is Too Much Paperwork
Similar to all UK Insurance providers, Income Protection Insurers recognise that claim forms and application forms need to be easy to complete without the extensive small print. By using the expert advisor service from Protect Income Insurance can make the application process as simple as possible, whilst ensuring that you get the policy you need within your monthly budget.
If you have questions or want to check out any specific point regarding your circumstances, or which policy may suit your individual needs, the expert advisors at Protect Income Insurance can help you with the answers. Applying for an Income Protection policy is been made a quicker and more simple process with no lengthy delays.
I Already Have Income Protection
By choosing to obtain an Income Protection policy, you have made an important decision. You have ensured that you have peace of mind, knowing that should you face an extended absence from work you will still receive an income.
A key point to remember is to ensure that you regularly monitor the level of cover your premiums are providing for you. If your individual circumstances change, including a change of job or a significant increase in salary. It is worth making the calculations to see if your existing Income Protection policy offers the best level of protection.
Hopefully today’s helpful guide from Protect Income Insurance has addressed some of the myths and misconceptions about Income Protection. If you have any further questions or would like to obtain a free no obligation quote, simply use our contact us form or the easy to use quote form.
