What is Income Protection?
Income Protection Plan is an insurance policy that offers continuity of income (up to a certain level - normally 50% - 70%) in the event of sickness or accident where an individual is unable to continue doing their normal occupation.
When selecting your income protection you will need to assess you own situation and tailor your plan accordingly, being careful not to pay for benefits you could never claim (you would not normally get a refund) but also ensuring that you have sufficient protection to meet your financial commitments.
Pay particular attention to your employer's sick pay arrangements, your income protection plan should follow on from where your employer's provision ends. Make sure you do not have Income Protection arrangements arranged on your behalf as you normally wouldn't be able to claim for both. Employers' income protection plans are sometimes referred to as "Income Protection Insurance" or "Permanent Heath Insurance".
A number of common terms associated with Income Protection plans are explained below:
Deferred Period - the time for which you must wait from the point of not being able to work due to illness or injury until a benefit would be payable under your Income Protection plan.
Reviewable Premiums - premiums can change regularly in line with a number of factors experienced by your insurance company, such as claims cost. These are normally cheaper than guaranteed rates when purchasing your plan, however the price of your cover could increase or decrease over the course of the policy. Important: You may not be able to afford future premiums and may need to reduce cover or even cancel your policy due to the increasing cost.
Guaranteed Premiums - your premiums are guaranteed for the duration of your policy. These offer the security of knowing your premiums, at the level of cover you purchased will remain the same for the life of the policy. If you choose an increasing option, your premiums will still increase in line with any additional cover you take.
Increasing Options - you can choose to have your cover increase in line with the 'retail prices index' or a pre-determined amount. It is important to remember that your premiums will increase along with your cover, and there will remain a maximum benefit level for which your plan cannot exceed (for the UnumProvident IRP the maximum benefit level is £350,000).
Retail Prices Index - a measure of the annual rate of inflation (change in the cost of living) in the United Kingdom by the British Government.
Limited Benefit Terms - the ability to restrict the payment of any benefit payable under your plan to a fixed period normally 2, 3, or 5 years. This will have the benefit of reducing the cost of your premiums, you should consider the impact on your financial security should you suffer a long-term illness.
Monthly Benefit Amount (£) - the amount of money you would receive if you suffered an illness or injury that prevented you from working. It is common to link this figure to increase with the Retail Prices Index so that your payments, if they continue for a long period of time, keep pace with inflation and retain their value.
When applying for your plan it is very important you do not misrepresent or withhold any information regarding your medical history or occupation. If you are unsure of the relevance of any information, include it on the application form anyway. Failure to truthfully or accurately disclose relevant information could result in any claim you make being denied.
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