May 23, 2012

Is income protection insurance worth it?

In some cases, income protection insurance can be a useful product which provides peace of mind for those who want to protect themselves against loss of earnings should they become or made redundant.

However, there are a certainly a few considerations that people should make before investing in such a product. This article discusses a few of these considerations and whether or not these products are right for you.


As with any insurance product, there are plenty of terms and conditions which determine whether or not a customer will receive a payout if they ever need to claim on this insurance. It really is worth going through this small print with a fine comb to see whether it is likely that a policy will be likely to support you should you need it to.

Many customers failed to do this when purchasing a similar product called payment protection insurance (PPI) from major high-street banks. This resulted in thousands of Brits have to reclaim PPI payments because there was absolutely no chance of the policies paying out; a prime example of mis-selling.

This could happen with some income protection products as well. Some policies will only pay out if a customer is physically injured to the point where they can't move. Others will only pay out if the customer can prove they are not to blame.

Other terms

Other terms and conditions worth bearing in mind when purchasing protection of this nature include the amount of time a customer will receive payments for, whether or not the premiums are fixed and the amount of time a customer is out of work before they can receive a payout.

Some policies may require a customer to be out of work for a year with an injury or illness before paying them any money. Those buying a policy like this will have to consider how they will fund themselves during any 'deferred period'.
Other policies will only pay out over a maximum of two or three years. These sort of policies will be no good for those who want cover against permanent injuries or illnesses.

Overlapping policies

Some customers might already be covered against a loss of income by other insurance products they already have. For example, those with life insurance will certainly not need to be covered in the case of death by an income protection product. Critical illness cover is another similar product which consumers may have already bought and therefore not need to purchase income protection.

It's also worth bearing in mind that the state will usually be able to offer benefits to those who are unable to work.

Income protection has saved a lot of people from a severe loss of earnings over the years. However, those who fail to make the considerations above could find that the product they buy is nowhere near as useful as they believe.

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