Remember the payment protection insurance (PPI) scandal? Given that you’ll probably end up getting cold-called about it today at some point, chances are it's still fresh in your mind.
One of the many knock-on effects of the debacle is how it’s put people off other financial protection products which are potentially much more worthwhile than the discredited PPI, like income protection insurance.
Income protection is there to cover you if you’re suddenly unable to work through sickness, or you’re made unemployed without warning. It’s designed for anyone who’s got dependants or who’d struggle to make ends meet if they were laid off or too ill to work.
According to the ABI, income protection insurance helped over 12,000 people in the UK last year, and less than 10% of claims were turned down.
The maximum you can usually claim is around your net monthly earnings, after tax and excluding any benefits you’re on. This usually works out at around 70% of your gross earnings, and you don’t normally have to give any to HMRC. It’s vital to make sure that you’re insured for the correct amount, and to review your policy if your salary changes.
People tend to consider income protection if they’re taking on big commitments like buying a house, having a baby or changing jobs. So, if you’re planning on doing any of the above soon, it might be worth having.
But there are plenty of circumstances in which you should strongly consider whether income protection insurance is necessary - for instance, if your job’s sick pay or redundancy offer is adequate, if state benefits could support you, if you’ve got savings, or if you have a partner or loved one who can help. You could even think about self-insuring - building up your savings instead of paying for an income protection policy.