Income Protection

The need for people to consider an income replacement policy at the moment is really important; however there are several different types of an income replacement plan available for people to choose from. Traditionally an income replacement option is ideal for someone who is looking for a policy to pay out on a potentially long term basis. Most people would consider a policy to either pay out up until their likely retirement date or possibly on a mortgage income replacement basis until the end of their mortgage term. Some people would have partial cover through work related benefits. Normally the best benefits available for income replacement would pay out their full salary for the first six months and then half their salary for the second six months. A lot of commercial businesses have recently closed some or all of the benefits previously included in their employment contract, therefore more people now need to consider looking at a personal income replacement plan. Ideally most people should try at least to consider a mortgage income replacement option, as this is normally most people’s prime concern. Even if people already have an income replacement policy for their mortgage ideally they should consider income replacement against their salary on a long term basis.

It is easy to confuse an income replacement policy with an ASU policy, normally ASU policies only pay out for either 12 or 24 months. It is also important for people to realise that most insurance companies would only allow a maximum of fifty percent of their gross annual income to be covered. However, in the event of a claim it is likely the insurance companies would do a head room check to see that the client was not be over insured and would only pay out the claim to the maximum allowable guideline. In the event of a claim the income payment made would be tax free and therefore tends in reality to pay an income closer to people’s net pay. There are many insurance providers in the market offering an income replacement plan, but it is really important again for a potential customer to compare what they would be covered for as very few policies would actually offer the exact same cover as one another.

Mortgage Income Replacement Insurance, Income Payment Replacement Insurance

It maybe a good idea to contact an independent financial adviser as they are likely to have the facility to compare prices and benefits of different policies more easily than a computer generated quote engine, and should therefore be able to explain the differences available. If you do speak to a broker it would be important for you to explain your current financial situation in order for them to be able to assess an appropriate policy for yourself. Several other factors will need to be taken into consideration for an insurance company to offer you a policy to suit your needs. They will need to know all about your current and possible past health condition. They will also need to take into consideration your occupation as this will have an impact as to the premium they would charge, most insurance companies have four different pricing bands relative to your occupation. It is likely that a manual employee would be charged a higher monthly premium than perhaps an employee working in an administrative role within an office or at home. Other factors that they will also need to take into consideration are possibly how many business miles per year you may travel or whether your salary is all basic or basic and commission or bonus. Therefore because of all the above different factors it may be better for someone to use the services of an independent broker. It may be worth considering that not all brokers will quote you the same premium for the same insurance provider and therefore it may be important to consider quotations form several different insurance brokers.

Another important consideration is that people often assume that an income replacement policy would include redundancy cover. In reality the only policies that would normally offer redundancy cover are when they are for mortgage income replacement on a short term benefit period. Another consideration for people to check prior to agreeing to take out any income replacement is whether it would pay out if they were unable to carry out their own occupation or whether they would need to be in a position where they could not carry out any occupation. In reality all these factors indicate the importance of looking at all aspects of policies conditions prior to agreeing to start a policy. It is now common place to be able to secure an online quotation from many different sources which may only use basic parameters for a quotation purpose, which only highlights the need to make sure that the insurance company is fully aware of all your health, occupation details and personal circumstances.

It is essential once someone has decided to apply for an income replacement plan that when completing the application form they answer all the questions in as much detail as possible. There have been cases where people have forgotten to document previous medical conditions that an insurance company could legitimately decide that they would not allow the claim on the basis of non disclosure. The guidelines for this have been recently updated but never the less if somebody is meticulous in the completion of their application form it would then negate the possibility of rejecting a claim. While the benefits available in the commercial employment market have seen a reduction, there is also a culture for those companies to offer a flexible choice which may include different insurances. Therefore people need to prioritise as to which ones are more important to consider first. For all self employed people or people who work for a company that do not offer these additional benefits most people consider mortgage income replacement to be the first policy to consider.

In the event of a claim most of these types of policies would need medical certification prior to a payment being made from the provider. They would also only receive that income on the basis of continued medical certification throughout the period of the claim. Most of these policies available have a deferment period which tends to range from one month to twelve months. A policy with a longer deferment period would typically cost less on a monthly basis as the insurer would not pay out under the initial deferment period. Because some people do have occupational benefits that might pay out salary even up to twelve months, you should therefore take that into consideration when you think about the deferment period. It is even possible to have a split benefit payment to accommodate someone who may have a reduction in salary payment from their in house company scheme. It is therefore very important for people to take advice prior to making a decision. Once you have made a decision and the policy has been underwritten and commenced it is then your responsibility to pay the premium on a regular basis normally on a monthly basis to keep the cover in force. Most polices do allow for some of your personal circumstances to change but not all and therefore you should really inform in the insurance company if your occupation or income changes.

The cover provided will continue until the end of the selected term and is likely to allow multiple claims but you must consider the deferment period you have selected if you need to make a second or subsequent claim. Some policies will allow at outset for you to select an increasing yearly benefit however you need to make sure that this is still within the fifty per cent guideline. If you are making a claim due to sickness or illness the benefit would normally be paid until you recover or return to work however in the event of your job not being available the policy will still only pay out while it is medically certificated that you are unable to work. Some companies may pay a lower benefit if you have to return to work on a part time basis or a less well paid job but these needs to be considered prior application. Another option that is possibly available on a guaranteed basis might be considered if you get married, have children, increase your mortgage or even  receive a salary increase normally of at least ten percent. It is possible to receive a nominal death benefit under this type of policy where your beneficiaries would receive a small lump sum payment if you die within the first twelve months of a claim, but this needs to be checked as only sum companies provide this benefit. It is also important to appreciate that most polices are only available to UK residents. Premiums for polices are normally chosen at outset and can either be reviewable or guaranteed, the reviewable option normally being cheaper but once again it is vital that the basis of this review is discussed prior to deciding which policy is most appropriate for you.