Top tips for buying income protection
Do you need to protect your income in case of the unexpected?
Research group Defaqto has published its top tips for buying the right policy:
1. The earlier you start, the cheaper the policy is likely to be and so it is worth getting cover sooner rather than later.
2. Always be completely honest in your application as any omissions or errors could invalidate a claim later on.
3. Income Protection policies are typically based on paying out 60% of income, for example if you earn £20,000 per annum, they would pay out £12,000 per annum. Do not overestimate your income if for example you are self-employed as you may end up being over insured without realising that you may not be able to claim the full amount you are insured for.
4. Check whether the policy covers against not being able to do any job or your own job. For example, if you have a job that requires you stand all day, such as hairdressing, and following illness you are unable to do this but could do another job such as data entry, some policies will not pay out.
5. People sometimes think that their employer will cover them in the event of a serious illness. However, most employers have limitations around what they will pay, which will be based on a group insurance policy and some smaller employers may have no cover in place. It is worth checking what they will pay and for how long just in case the worst happens.
6. Check the waiting period before any claim is paid out. It is important that you chose the right waiting period that aligns with your employer’s sick pay scheme, if they have one. This will be typically be between one and three months. The longer the deferment period, the cheaper the premium will be but you need to consider how long your savings would last in the event of a claim.
7. If you are self-employed, consider a shorter deferment period as you will not benefit from an employer scheme.
8. Some people believe that state benefits will be enough to live on but in reality, any benefits are generally not enough to maintain the standard of living a person is be used to when working. With Universal Credit there is also less certainty about whether you can claim.
9. You can check what the Star Rating is on any income protection product on Defaqto’s website before buying. Defaqto surveys the whole market and awards ratings based on the features and benefits each product offers.
10. Seek professional financial advice to ensure that you get a product that is appropriate for your circumstances. A good financial adviser will consider how any income or benefits you may be entitled to will affect any pay-out and will advise you on the right product for your needs.