Income protection insurance—a buyer's guide

What is income protection insurance?

Few of us like to think about becoming seriously ill or having an accident, but it's worth considering how you would manage your finances if the worst was to happen and you were unable to work.

For example, how would you pay your mortgage without an income? That's where income protection, sometimes called permanent health insurance, comes in.

How much income protection cover do I need?

• You need to calculate your monthly outgoings and how much income you would need to live on every month, taking into account any savings you might be able to use.
• Check, too, whether your employer has income protection in place that you could benefit from.
• If you have a mortgage, check whether you have payment protection insurance that would cover your mortgage payments.

Can I take out income protection cover if I'm self-employed?

Some income protection policies will cover the self-employed and those on fixed-term contracts, but double-check with your insurance provider if you are in this situation.

Can I defer payment?

If you know you could cope without an income for, say, six months, then ask the income protection provider if they offer this type of policy, as the premiums will be cheaper if you agree to delay taking any benefit for six months.

Will state benefits or other policies affect my income protection payout?

Check whether the income protection policy reduces what it pays out if you receive any state benefits or claim money under any other insurance policy you might hold.

What happens if I can do a different job?

Some income protection policies only pay out if you can't do any work at all—in other words, if you are seriously incapacitated. Other income protection policies cover you for being unable to do your regular job, and will still pay out if you manage to find alternative work.

How long will I be paid for?

Check this with the income protection provider. Most policies will continue to pay out until you reach your chosen retirement age, but some newer types of income protection policies may pay out for only a year.

Does the cover increase in line with inflation?

Check with your income protection insurer about whether or not your policy factors in inflation.