Advantages And Disadvantages Of Income Protection Insurance
Income protection is a type of insurance that is often misunderstood in
the UK. As with other types of insurance there are many advantages and
disadvantages to having a policy, and here we list a few of them.
First, let’s explain a little about income protection. This type of
insurance will replace part of your income tax free if you cannot work
because of accident, sickness or unemployment. There are many different
types of policy, most of which can be adjusted according to your
individual circumstances.
Advantages
• Income protection can cover up to 70% of your mortgage. This could
work out to be significantly more than the government would pay you in
benefits.
• Some long term policies offer cover until retirement age. This means
that if you suffer a long term illness, you will receive your benefits
either until you can return to work or until the age of 64.
• The money can be used however you please. Most people choose to cover
their mortgage, bills and other financial commitments, but it could be
used for general lifestyle costs.
• The policy can be tied into a particular debt, like a mortgage or credit card repayments.
• You can choose cover for accident and sickness only, accident, sickness and unemployment, or unemployment cover only.
• Unemployment cover could offer back to work schemes and training to help you find a new job.
• Income protection can be designed to kick in only after your sick pay stops, so your premiums are lower.
Disadvantages
• Unemployment cover will only pay out for a maximum of 12 months, even if you haven’t found a new job within this time.
• Accident, sickness and unemployment policies usually only offer 12
months of benefits as well. Long term-policies offer better cover, but
are sometimes more expensive.
• Pre-existing conditions may not be covered on your policy, so it is important to take one out before you need it.
• Similarly, you will not be covered for redundancy if you already knew
there was a chance it was going to happen. This protects the insurance
companies against people taking advantages of the policy.
• Smokers will usually pay higher premiums for accident and sickness cover because they are more likely to fall ill.
• It is important never to buy a policy without researching the market
first to get the best deal; otherwise you could be paying more than you
need to.
Now you know the advantages and disadvantages, it is up to you to decide whether income protection is right for you!
