The number of people seeking income protection has soared this year as fear of redundancy has gripped the nation in a way no one could reasonably have predicted.
Income protection policies will generally pay out if you are unable to work due to illness or injury.
The cover typically extends to mortgage payments, loan payments, cover for accidents and poor health, and protection against redundancy.
Naturally, the coronavirus pandemic has affected this market as it has every other. Many providers have added exemptions to their policies, and some have removed themselves from the market.
Others have stepped up and shown flexibility to their customers in the form of payment holidays for vulnerable individuals or freezing the policy whilst the customer secures their income. Furloughed workers can still apply for policies, but they will not be able to make a claim if made redundant.
Similarly, if you purchase a policy in response to the pandemic, you’ll be unlikely to receive a payout for self-isolation or short illnesses. Most income protection policies are for long-term sickness.
Cost of protection
The cost of your protection is calculated by back office systems for IFAs on several variables, including overall health, whether you’re a smoker and the level of cover required. Many providers will also consider the level of risk in your occupation.
Any working-age adult should consider purchasing income protection because in the event of being unable to work, few employers will cover your salary past one year. In terms of benefits, it’s one of the most valuable policies, yet a survey by Which? found that less than 9% actually had income protection despite 41% holding life insurance and 16% paying for private health insurance.
You can even index-link your policy so it rises according to a measure of inflation such as the CPI or RPI. This is a good way to ensure that the policy is commensurate with the salary you would have been receiving at the time when invoked. You can also consider https://www.intelliflo.com/intelligent-office-back-office-system-for-financial-advisers.
Another option is steeped benefit. This means that you can choose between two different payment levels according to the sickness benefits your employer offers. You would be able to draw a lower level from the policy while your employer is still paying a higher percentage of your salary, then take a higher amount once this drops.