Income protection insurance can pay you a tax-free, index-linked monthly income until your retirement age, if you are unable to work due to accident or ill health.
Why should you have income protection insurance? Because quite simply, your income supports everything else in your life. If your income stopped, for how long would you manage? If you are concerned about how you would manage in the event of ill-health or accident, please contact me for expert income protection advice.
Income protection cover is not all the same!
The quality of your income protection cover, or how likely it is to pay out if you cannot work, is determined by your policy’s definition of disability.
The importance of having the correct definition cannot be stressed too highly. If you have a poor quality disability definition, it could mean that your policy will not pay out, leaving you with no money.
The ‘Own Occupation’ definition is regarded as the ‘Rolls Royce’ of income protection cover and is the very best type of income protection cover available. As an independent adviser, I always strive to ensure that my clients have ‘own occupation’ cover.
The income protection definition that you can have is determined by your occupation and duties. However, different insurance firms treat the various occupations in widely-differing ways, and you should not assume, due to your particular job, that you cannot have the best ‘own occupation’ cover.
The four main disability definitions are:
As stated above, this is the very best type of income protection cover. It will pay out if you are temporarily unable to do the material and substantial duties of your job.
(Material and substantial duties are those normally done in your occupation and which cannot reasonably be left out or changed by you or your employer.)
Own or Suited Occupation
This definition is not as good as the ‘own occupation’ definition described above; however, it still provides worthwhile cover. It will pay out if you are temporarily unable to do the material and substantial duties your own job or any to which you are reasonably suited by your education, training, knowledge or experience.
Aspects of Daily Work or Aspects of Daily Living
This is a poor quality definition. It typically depends upon an inability to carry out certain specific tasks, such as sitting, walking, lifting, getting up from a chair, bending or kneeling or performing domestic duties. You would usually have to be unable to carry out at least three of the range of such tasks. Each of the tasks would have an exact definition, for example, ‘walking’ might be defined as (the inability to) "walk 200 metres without stopping at a reasonable walking pace and without the use of sticks, crutches or other assistive devices".
A policy with this disability definition would not pay out unless your were so ill or so severely disabled that you were incapable of carrying out any work whatsoever. This is an extremely poor definition and the value of a policy with such a definition of disability would be questionable.
If you ill health prevents you from working, you may be entitled to some state benefits. However, if you have a look at the eligibility criteria and potential benefits, you may wish to consider taking out your own private income protection insurance, rather than rely on the state. If you do qualify for state benefits, they will be subject to a benefits cap.
Ill Health Early Retirement?
If you’re in an occupational pension scheme, you may be able to claim ill-health early retirement, but did you know that many schemes (such as the the NHS, won’t consider you for ill health early retirement unless your disability is permanent. A ‘temporary’ condition could last several years. What would you do if your condition is not deemed ‘permanent’ in nature by your pension scheme and your application for ill health early retirement is refused?
On the other hand, an income protection plan will pay out even if your inability to work is only temporary, you do not have to be permanently incapable of working. In addition, even if you do qualify for an ill-health early retirement pension, it may not be very much (see ‘Mike’s Story’).
In 2005, I saw Mike to arrange a mortgage for him. I also recommended that he take out income protection cover that would provide him with a tax-free, index-linked monthly income until his retirement age, in the event he could not work due to ill-health.
I also recommended that he take out life and critical illness cover that would pay-off the whole mortgage in the event of his death or critical illness.
Mike chose not to take out critical illness cover; he did, however, take-out income protection cover, albeit not for the level of cover that I had recommended, but for a lower amount of benefit. Mike subsequently came to rely on this income protection cover to keep his home.
Apart from the usual colds, etc. Mike had enjoyed good health all his life. However, in early 2006, and only 41 years old, Mike felt the first symptoms of what would be diagnosed as multiple sclerosis.
(In Mike’s case, his illness meant that he would never be able to work again; but his income protection policy would still have paid out for the duration of his inability to work, if he had had an ailment or medical condition that only temporarily prevented him from working.)
Use My Expertise
I offer expert, no obligation, independent income protection advice, so whether you are considering taking-out income protection, or would simply like to have a free review of any existing income protection cover that you may already have, please contact me for advice.