Support for when benefits aren't enough

The welfare system is under review, and it might be worth looking at income protection insurance. Chiara Cavaglieri reports

Radical changes to benefits come into play on Monday after the biggest shake-up to the welfare system in decades. With various tweaks and a new benefit cap which could hit households with a loss of £93 a week, it's more important than ever that individuals take steps to support themselves – and for the working population, that means income protection.

The controversy surrounding payment protection insurance (PPI) has made many people wary of all protection policies in the market, but income protection (IP) is an entirely different product and one that all employees should consider taking out.

There is a widespread lack of awareness about how IP works, but it actually does what it says on the tin – it covers a person's income should they be unable to work due to illness or injury. As well as being refreshingly straightforward, many providers pay more than 90 per cent of claims so it could be a welcome and reliable safety net.

"With further cuts being made to benefits it is clear that state support in the event of long-term incapacity or ill-health is not guaranteed and it is increasingly up to each individual to take responsibility for their own financial situation," said Karen Barrett at the advice website Unbiased.co.uk.

"Income protection is designed to provide an income should you be unable to work and ensures that you will still be able to pay for the mortgage and the everyday essentials should something happen to you."

Being out of work and unable to cover bills and the cost of living is potentially disastrous; legally, employers are entitled to statutory sick pay for up to 28 weeks, but after this you must depend on state benefits. Constant changes to the benefits system make it almost impossible for individuals to rely on the state. If you're lucky, your employer may have group income protection in place, so check the sick pay arrangements in your contract.

There are a few things to watch out for when buying IP, particularly the definition used by the insurer to measure whether you can work. While critical illness cover is determined by a list of conditions – if it's not on the list, you're not covered – IP cover is determined by the insurer's definition of "incapacity". Avoid policies that pay out only if you can't do "any occupation", as you'll have to be completely incapacitated to claim. Cover based on "activities of daily working" can also be very tricky because under these policies you can only claim if you are prevented from carrying out various work-related tasks, such as walking and communicating.

Kevin Carr at Protection Review said: "The one you want to look for is 'own occupation' which means you cannot do your own job, the one you're trained for. It will pay you a tax-free monthly income until you are well enough to return to work, or you retire."

An IP policy typically replaces between 50 and 70 per cent of your salary. You will usually have to wait for a specified period before you can claim – anything from four weeks to two years – but it makes sense to arrange for the policy to kick only after you have benefited from any employer and statutory sick pay, because the longer the deferral period, the lower your premiums.

Ray Black, the founder of money-minder.com, said: "Beware the very cheapest policies which instead of offering long-term cover may only pay out for a defined and usually quite short period, sometimes for only a year. If you have a serious long-term illness or condition this type of policy probably won't provide the cover you need."

You can buy IP directly from an insurance company, or through an independent financial adviser who may be better equipped to find the right policy. Various factors affect the premium, including your age, your health and the riskiness of your job.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Mortgage Advisor - OTE £95,000

    £40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...

    SThree: Trainee Recruitment Consultant

    competitive: SThree: Are you passionate about sales?Do you have a keen interes...

    Recruitment Genius: Loan Adviser - OTE £30,000

    £17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Day In a Page

    Isis in Syria: Influential tribal leaders hold secret talks with Western powers and Gulf states over possibility of mobilising against militants

    Tribal gathering

    Influential clans in Syria have held secret talks with Western powers and Gulf states over the possibility of mobilising against Isis. But they are determined not to be pitted against each other
    Gaza, a year on from Operation Protective Edge: A growing population and a compromised and depleted aquifer leaves water in scarce supply for Palestinians

    Gaza, a year on from Operation Protective Edge

    A growing population and a compromised and depleted aquifer leaves water in scarce supply for Palestinians
    Dozens of politicians, bureaucrats and businessmen linked to Indian bribery scandal die mysteriously

    Illnesses, car crashes and suicides

    Dozens of politicians, bureaucrats and businessmen linked to Indian bribery scandal die mysteriously
    Srebrenica 20 years after the genocide: Why the survivors need closure

    Bosnia's genocide, 20 years on

    No-one is admitting where the bodies are buried - literally and metaphorically
    How Comic-Con can make or break a movie: From Batman vs Superman to Star Wars: Episode VII

    Power of the geek Gods

    Each year at Comic-Con in San Diego, Hollywood bosses nervously present blockbusters to the hallowed crowd. It can make or break a movie
    What do strawberries and cream have to do with tennis?

    Perfect match

    What do strawberries and cream have to do with tennis?
    10 best trays

    Get carried away with 10 best trays

    Serve with ceremony on a tray chic carrier
    Wimbledon 2015: Team Murray firing on all cylinders for SW19 title assault

    Team Murray firing on all cylinders for title assault

    Coaches Amélie Mauresmo and Jonas Bjorkman aiming to make Scot Wimbledon champion again
    Wimbledon 2015: Nick Bollettieri - Vasek Pospisil must ignore tiredness and tell himself: I'm in the quarter-final, baby!

    Nick Bollettieri's Wimbledon Files

    Vasek Pospisil must ignore tiredness and tell himself: I'm in the quarter-final, baby!
    Ashes 2015: Angus Fraser's top 10 moments from previous series'

    Angus Fraser's top 10 Ashes moments

    He played in five series against Australia and covered more as a newspaper correspondent. From Waugh to Warne and Hick to Headley, here are his highlights
    Greece debt crisis: EU 'family' needs to forgive rather than punish an impoverished state

    EU 'family' needs to forgive rather than punish an impoverished state

    An outbreak of malaria in Greece four years ago helps us understand the crisis, says Robert Fisk
    Gaza, a year on from Operation Protective Edge: The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas

    Gaza, a year on from Operation Protective Edge

    The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas
    How to survive electrical storms: What are the chances of being hit by lightning?

    Heavy weather

    What are the chances of being hit by lightning?
    World Bodypainting Festival 2015: Bizarre and brilliant photos celebrate 'the body as art'

    World Bodypainting Festival 2015

    Bizarre and brilliant photos celebrate 'the body as art'
    alt-j: A private jet, a Mercury Prize and Latitude headliners

    Don't call us nerds

    Craig Mclean meets alt-j - the math-folk act who are flying high