What is income protection?

Income protection is a form of insurance cover taken out to ensure your financial stability, if you were to suddenly become unemployed due to sickness or illness.

If you purchased income protection before you became unable to work then your cover would pay out either weekly or monthly, giving you financial security during such a difficult time. These payments would enable you to continue paying everyday costs such as rent or mortgage payments. All payments received are tax free. The average payout is between 50% and 75% of your income when the protection cover was taken out. Once you are able to return to work then the payouts will stop and you will be required to make the cover payments again.

There are three definitions of income protection which once one is chosen reflects the type of cover you’ll receive and your eligibility to receive payments. An own occupation definition will pay out if you are unable to do your job. A suited definition will pay out if you are unable to do your job or any job similar to your own job. An any occupation definition will pay out if you are unable to do any form of paid work. The best definition to receive is an own occupation as you will receive payout if you are unable to do your own job.

Most income protection policies do not cover unemployment due to redundancy. There are other insurance covers available which do cover redundancy unemployment.

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