Income Protection
Income Protection Advice for Employees, Self-Employed People and Business Owners
Your income is one of your most valuable financial assets.
It pays your mortgage, rent, household bills, food, transport and the everyday costs of running your life. But what would happen if illness or an injury meant you couldn't work for an extended period?
For many people, their savings may only cover a few months of normal expenses.
Income Protection is designed to provide a regular income if you are unable to work because of illness or injury, subject to the terms and conditions of the policy.
At Cambs Ely Mortgages, we provide independent mortgage and protection advice across Ely, Cambridge, Cambridgeshire and throughout England. We can help you understand how Income Protection works and whether it could form part of your wider protection strategy.
What Is Income Protection?
Income Protection is an insurance policy designed to provide a regular income if you are unable to work because of illness or injury.
Unlike Critical Illness Cover, which generally provides a lump sum following a qualifying diagnosis, Income Protection is designed to provide an ongoing monthly benefit.
The benefit can help you maintain your financial commitments while you are unable to work.
Depending on the policy, cover may continue until you return to work, reach the end of the policy term or reach a specified age, subject to the policy conditions.
Why Consider Income Protection?
Many people insure their home, car and possessions but don't consider what would happen to their income.
Yet losing your ability to work could have a much larger financial impact.
Your regular income may be needed to pay:
Mortgage or rent
Household bills
Food and living expenses
Council tax
Travel and transport
Childcare
Loans and other debts
Insurance premiums
Other regular financial commitments
Your employer may provide some sick pay, but this varies considerably between employers and circumstances.
Once employer sick pay ends, your household may need to rely on savings or other sources of income.
Income Protection can help bridge that financial gap.
How Does Income Protection Work?
You normally choose the level of monthly benefit you want to protect, subject to the insurer's maximum limits.
If you become unable to work because of illness or injury and meet the policy's claim conditions, the insurer can pay the agreed monthly benefit.
There is normally a deferred period before payments begin.
For example, a policy could have a deferred period of four, eight, 13, 26 or 52 weeks, depending on the insurer and policy.
The longer the deferred period, the lower the premium may be.
The appropriate deferred period can therefore depend on your employer sick pay, savings and financial circumstances.
How Much Income Can Be Protected?
You cannot normally insure your entire existing salary.
Insurers generally place limits on the proportion of income that can be covered, with the exact amount depending on the provider and your circumstances.
When considering the appropriate level of cover, we can look at your essential monthly expenditure and how much income you would need to maintain your lifestyle.
The objective isn't necessarily to replace every pound you currently earn.
It is about creating a level of financial protection that could help you continue meeting your commitments if you were unable to work.
Income Protection for Self-Employed People
Income Protection can be particularly important for self-employed people.
If you are employed, you may have access to employer sick pay and other workplace benefits.
If you are self-employed, you may not have the same level of support.
Your business may stop generating income if you cannot work, while your personal mortgage and household bills continue.
This can create a significant financial risk.
The right policy can potentially provide an income while you are unable to work, helping you maintain your personal finances while you recover.
For self-employed applicants, understanding how the insurer defines occupation and incapacity is particularly important.
Own Occupation vs Suited or Any Occupation
One of the most important aspects of Income Protection is understanding how the policy defines your inability to work.
Some policies can provide cover based on your ability to perform your specific occupation.
Others may use broader definitions, such as whether you could perform another suitable occupation.
These definitions can have a significant impact on the circumstances in which a claim may be paid.
For example, being unable to perform your normal occupation does not necessarily mean you are unable to perform another type of work.
The exact definition depends on the policy.
This is why looking only at the monthly premium can be misleading when comparing Income Protection policies.
Income Protection and Critical Illness Cover
Income Protection and Critical Illness Cover are designed to protect against different financial risks.
Critical Illness Cover generally provides a lump sum if you are diagnosed with a qualifying condition covered by the policy.
Income Protection is designed to provide an ongoing income if illness or injury prevents you from working, subject to the policy definition and claim conditions.
You don't necessarily need both.
However, for some people, they can work together.
For example, Critical Illness Cover could provide a lump sum following a qualifying diagnosis, while Income Protection could provide ongoing financial support if you remain unable to work.
The appropriate combination depends on your circumstances and budget.
Income Protection and Life Insurance
Life Insurance protects against a different risk again.
Life Insurance is designed to provide a benefit following death during the policy term, subject to the policy conditions.
Income Protection is designed to provide financial support while you are alive but unable to work because of illness or injury.
For someone with financial dependants, both risks may need to be considered.
A protection review can help identify where the biggest financial gaps may exist.
What Affects the Cost of Income Protection?
Premiums can depend on several factors, including:
Your age
Occupation
Income
Level of cover
Deferred period
Policy term
Health
Medical history
Smoking status
Lifestyle
Policy definition
Additional benefits
Certain occupations may carry greater underwriting risk than others.
Insurers can also assess medical histories differently, meaning premiums and underwriting decisions can vary between providers.
Medical information may be requested when you apply.
What Happens If I Can't Work?
If you become unable to work because of illness or injury, you would normally need to make a claim with your insurer.
The insurer will assess the claim against the policy terms and definition of incapacity.
If the claim is accepted, the monthly benefit can then be paid in accordance with the policy.
There may be conditions around how long you have been unable to work, medical evidence and ongoing eligibility.
This is why it is important to understand the policy before you need to rely on it.
Income Protection for Mortgage Holders
Your mortgage is usually one of your largest monthly commitments.
If your income stopped, continuing to make mortgage payments could become difficult.
Income Protection can potentially provide an ongoing benefit to help with mortgage payments and other household expenses while you are unable to work.
It does not specifically pay off your mortgage. Instead, the income benefit can give you greater financial flexibility.
If you have a mortgage, it is important to remember:
Your property may be repossessed if you do not keep up repayments on your mortgage.
How Much Should My Deferred Period Be?
The deferred period is the amount of time you normally need to be unable to work before the policy starts paying.
A shorter deferred period can mean benefits become payable sooner, but premiums can be higher.
A longer deferred period may reduce the premium but requires you to have enough financial resources to cover the initial period.
For example, someone with substantial employer sick pay may choose a longer deferred period than someone who has little or no sick pay.
There isn't one correct deferred period for everyone.
Reviewing Existing Income Protection
Your circumstances can change considerably over time.
You may have:
Received a pay rise
Changed occupation
Become self-employed
Taken on a larger mortgage
Had children
Started a business
Changed employer benefits
Increased your monthly expenses
If your income has increased since you arranged your policy, your existing cover may no longer reflect your financial circumstances.
A protection review can help you understand what cover you currently have and whether it remains appropriate.
Income Protection Advice in Ely and Cambridgeshire
At Cambs Ely Mortgages, we believe protection should be considered alongside your mortgage and wider financial commitments.
Whether you are employed, self-employed, a first-time buyer, homeowner or business owner, your ability to earn an income can be fundamental to your financial security.
We have access to a wide range of protection providers and can compare suitable options based on your circumstances.
We can explain the differences between policies, including deferred periods, occupation definitions and benefit levels, so you can make an informed decision.
Protect Your Income. Protect Your Future.
You may have spent years building your career, buying your home and creating a comfortable lifestyle.
Income Protection can help protect the income that makes all of this possible.
If you are unsure whether your current protection is sufficient, or you have never considered Income Protection before, speak to Cambs Ely Mortgages.
Building Blocks for a Brighter Future.