Posted 14 Jan 2022

There is plenty of information out there about what income protection is, what it does, and why it’s valuable. But what are the common myths and misconceptions surrounding this type of policy? It’s important to understand not just what income protection is, but also how it affects you as a consumer in the real world – and unfortunately, this topic has built up some inaccuracies over time.

Today, we’ll be looking at some of the biggest myths and common assumptions regarding this newer type of policy to separate the good from the bad.

“I get sick pay with my job, so I don’t need income protection”

The answer to this one is a bit of a “yes and no.” Whilst it is true that everyone is entitled to Statutory Sick Pay, the reality is that this will only pay you £96.35 per week for up to 28 weeks. This is unlikely to cover your expenditure each week even if you make significant cutbacks, especially if you have a mortgage, rent, or a family to provide for.

A select few of us may be lucky enough to have an employment package that includes some additional sick pay, but it is very rarely the case for someone to be 100% guaranteed to receive enough sick pay to properly cover the entirety of their absence.

If you would not be able to realistically live on Statutory Sick Pay, and if your employer doesn’t provide sick pay (or you can’t say with absolute certainty whether you would be able to live on whatever they do provide) then it’s very likely that income protection would benefit you greatly.

Answer: even if you get sick pay, it doesn’t mean that you don’t need income protection or wouldn’t benefit from it.

“I can’t get income protection because I am self-employed or have a medical condition”

We of all people understand how medical conditions and personal circumstances can affect insurance policies, and why you may be concerned that you would not get cover as a result. You can, therefore, also trust us when we say that this is certainly not always the case.

It is a broad assumption that health problems would prevent you from being able to take out income protection. When you make an application for a policy, the insurance provider will ask you questions about your health, and you will need to disclose any medical conditions that you already have. They will then carry out a process called Medical Underwriting, whereby they calculate the risks involved and make a decision on how to structure your policy. Remember that any medical conditions you may be diagnosed with in the future would be covered if you need to take time off work, so income protection is worthwhile even if you already have health problems, as the future could hold further diagnoses. This also means that the sooner you apply for the cover, the more beneficial it is likely to be.

It’s also good to note that different insurance providers have different approaches to underwriting and, therefore, may not necessarily treat medical conditions the same as one another, so it’s a case of finding the best insurer for you.

Similarly, if you are self-employed, the insurance provider may ask for evidence of your income in the form of self-assessment returns and/or accounts in order to determine how much cover you can get. Just because you’re not on PAYE, doesn’t mean you can’t get income protection.

“You won’t get a pay-out on income protection”

So far, we’ve spoken a lot about getting income protection, but what about when it comes to making a claim? Some people might assume that there is a significant restriction on what you can claim for, and how long you can claim for.

This is, without a doubt, one of the biggest falsehoods surrounding this type of policy. In reality, you’re much more likely to get a pay-out on income protection than you are with regular life insurance or critical illness cover.

To put it into perspective, think about it like this: if you’re 40 years old and take out an income protection policy to last until you turn 70. Are you more likely to die in those 30 years, or are you more likely to contract an illness or injury causing you to take time off work?

Of course, you’re statistically more likely to need time off work than you are to pass away during the term of the policy. Therefore, an income protection policy is much more likely to pay out than life insurance or critical illness cover.

“Income Protection won’t cover long-term sickness”

This again links back to statutory sick pay. Earlier, we mentioned that SSP can pay you for up to 28 weeks. In contrast, income protection can generally pay you for 12-24 months for each claim you make, however, there are some options that can pay for longer. You can also claim as many times as you need during the life of the policy if you’re still off work due to sickness or injury. Generally, there need to be 6 months between each claim, but there is no limit to how many times you can claim while the policy is active.

So, not only does IP pay far more than SSP, but it also pays out for longer and you can claim numerous times.

“Income Protection doesn’t cover me if I lose my job”

We can understand why many people may think that income protection only covers you for time off work if you’re still employed. It protects your income, so if there’s no income then it can’t pay out, right?

The answer is no, this is wrong. If you lose your job through no fault of your own, then your policy would still cover a significant percentage of your income as a result. This can seriously alleviate the financial burden of losing your job and helps to take the pressure off during the ensuing job search – which is a headache of its own even without the added stress of finding a job before you run out of money.

Who knows, you may even end up with a better job as a result of having an income protection policy versus not having one, as it would allow you to spend more time finding the perfect match.

 

To conclude, we hope that we’ve helped to dispel some of the myths and uncertainty surrounding income protection, and highlighted the benefits of the valuable product that income protection really is.

Seven Families

7 Families is a charity-led awareness campaign to help people to see the effects of long-term sickness and financial support from income protection.

You can visit http://7families.co.uk/ to see seven videos that explain the impacts of illness or injuries.

Find out more and see how people are affected by short-term and long-term sickness.

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Dom Limberg
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