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; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
PROMOTED VIDEO
Life and Style
food + drink
Arts and Entertainment
musicBand's first new record for 20 years has some tough acts to follow
News
Shoppers in Covent Garden, London, celebrate after they were the first to buy the iPhone 6, released yesterday
tech
News
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Life and Style
healthFor Pure-O OCD sufferers this is a reality they live in
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
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

    Trainee / Experienced Recruitment Consultants

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

    Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Quantitative Risk Manager

    Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

    Day In a Page

    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world
    Apple still coolest brand – despite U2 PR disaster

    Apple still the coolest brand

    Despite PR disaster of free U2 album
    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments