What is income protection insurance and why do you need it?

Income protection is an insurance policy that pays out if you find yourself unable to work due to some sort of injury or illness. This type of insurance normally pays you until retirement, until you pass away or should you return to the workplace. However often people take out shorter-term policies, which may cover them for a couple of years.

This type of policy doesn't pay out should you be made redundant, however, it will give you peace of mind if you're off sick or have an ongoing illness.

Is income protection worth it?

Weighing up the cost of Income Protection depends on your lifestyle, current health and the level of coverage you wish to have. It’s possible to build a policy around your own circumstances. It could cover your mortgage or rent or more of your full income. The length of the plan is also tailored to you.

It’s always useful to research how much Statutory Sick Pay (SSP) you’re eligible for in your current role then consider at which point you would like your insurance payout to begin.

Does income protection affect state benefits?

Should you have an income protection policy and are looking to claim Universal Credit, this will affect the amount of benefits you can receive. Income protection insurance is treated as a future income. This means it is taken into account when calculating how much Universal Credit you are entitled to. You can find out more about how it is calculated here.

Is it useful for the self-employed?

One of the main worries, when you work for yourself, is how to manage if you were seriously ill or injured. If you have a mortgage and a family and lose your income, without a significant amount of savings you would find yourself in difficulty.

You can apply for Employment and Support Allowance which is financial support from the government. Although this is an option, the level of support is far lower than what would be provided in an Income Protection policy.

Income Protection is created in the first instance to replace your income. Normally it will cover a percentage of your usual salary - approximately 50% and 70%. If you take out a policy, you can decide on the range of illnesses and injuries covered.

For the self-employed, Income Protection should really be part of your business plan, especially if you are the main earner. This means your family can still get through a difficult period without as much worry.

It can be overwhelming with so many insurance products on the market, however, income protection is always worth considering especially during the difficult times many companies are facing.

Plan for the future now and think about how your families circumstances could be protected and best served. Not only will this provide practical help but also peace of mind.

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**This is a collaborative post.*