Coronavirus has alerted more people to the benefits of income protection insurance. Hatice Karadal of Alexander Hall explains how it could help protect you in the event you cannot work because of the consequences of Covid-19
Income protection insurance is designed to help you financially if you are unable to work due to illness or injury.
If your income were to suddenly stop, you’ll have peace of mind knowing that your monthly commitments, such as mortgage payments, rent and bills are all covered.
In the event of a claim, the cover would continue to pay until retirement, the end of the policy term or when you are fit to return to work.
Why is it so important?
The average UK employee has enough savings to sustain themselves for 32 days, according to the ‘Deadline to the Breadline’ report by Legal & General.
Without income protection, those unable to work due to illness or injury are able to claim Statutory Sick Pay (SSP) from the government.
This will pay just £94.25 per week and is only paid for a maximum of 28 weeks. For the significant majority of people it is nowhere near enough to cover basic outgoings.
There are two types of income protection cover:
1. Long-term income protection
This is the most common type of cover. It pays an income benefit for the entire length of the policy (typically to retirement age) if you are unable to return to work due to illness or injury.
The amount of income benefit the policy pays out is set based on a percentage of your income or a specified chosen amount – this cannot be more than your regular earnings.
2. Short-term income protection
This is the second type of income protection and is designed to cover you for a limited time period, typically one or two years.
This is much cheaper than long term cover, though you are of course exposed to the risk of still being unable to work at the end of the pay-out period.
You can make multiple claims throughout the length of the policy, but will need to have returned to work for at least six months after the initial claim period has ended, in order to claim on the same condition again.
Can I claim on income protection for Covid-19?
If you have an existing income protection policy, you should be able to claim if you catch Covid-19 and are subsequently out of work.
However, most people who suffer symptoms which prevent them from working, are typically fit to return within a couple of weeks.
It’s therefore unlikely a claim will be needed unless symptoms are severe and continue beyond the initial waiting period of the policy.
What else should I know about income protection policies?
One key thing to know is most income protection policies have a waiting time between claim and pay-out (also referred to as a deferred period).
This period of time is typically set by the policy holder and will influence the cost of the premiums. For example, if you have no sick pay through your employer, you would most likely want the benefit to begin as soon as possible starting from the first month from claim.
If you do have a sick pay benefit, and or the ability to sustain some costs through savings, you may wish to set the deferred period to a later date, in turn reducing the cost of the policy.
The Association of British Insurers says self-isolation from Covid-19 will probably only be covered for policies with day-one or one-week waiting periods and self-isolation is only likely to be covered if you’ve been advised to do so by a medical professional.
If this isn’t the case, you’re ‘unlikely to be covered unless symptoms are severe and continue beyond the waiting period’.
While the Covid-19 pandemic has alerted more people to the need of having protection, it’s vital to bear in mind that the majority of claims – now and in the future – will be for illnesses and injuries which are not related to Covid-19, but nonetheless need protecting against.
How to get the advice you need?
My team and I will focus on finding you the right policy, specifically tailored to your requirements – whether it is for the short term or the long term.
We would make the right recommendation for you by taking into consideration what is most important to you and your family, and identifying how much income you might need if the worst happens.
Feel free to contact me on my mobile 07875 80 0422 or you can email me on Hatice.Karadal@alexanderhall.co.uk to discuss any of the points raised or visit our website.
Hatice Karadal is manager of the protection team at mortgage intermediary Alexander Hall
