Income protection insurance is a type of insurance product that will pay an individual a percentage of her income if she is unable to work because of an illness or injury. Income insurance is an insurance that is available in the United Kingdom and is similar to disability income insurance that is available in the United States. The income insurance benefit pays out tax-free income on a monthly basis that is designed to restore an individual to where he was before he stopped working.
Income protection insurance is needed for many reasons including the need to pay bills when an individual becomes sick. Most people work and rely on their income to pay bills for a mortgage, credit card, phone as well as certain types of taxes. If income insurance was not available, an individual would need to pay all of these expenses out-of-pocket from savings. Injuries such as an accident may also make returning to work lengthy if at all.
An income protection policy can pay between 50 percent and 75 percent of an individual's pre-tax or gross salary depending on the insurer. Coverage can be purchased to cover specific costs such as a mortgage or any basic costs. An income protection insurance policy is available for a fixed term such as 5 to 10 years or shorter periods between 12 and 24 months. All payments that count as income need to be considered when determining the amount of insurance that is needed.
The costs of a policy can vary from insurer to insurer and depend on a variety of factors. These can include the length of coverage, the amount of replacement income that is needed, the waiting period before payments start as well as any additional options that are purchased. Other factors can include an individual's age, sex, occupation as well as the age at which retirement starts. The health history and occupation of an individual are also factored into the cost of a policy.
The benefits that are paid out on an income protection policy depend on any deductions that apply for other types of payments. Payments can include supplemental sick pay or wages paid by an employer, earnings from self employment and any pension payments. Payouts from an insurance policy or dividends received from stock are also deducted from the payment amount. The payment from an income protection insurance policy typically starts after an individual has been out of work for four to six weeks.
An income protection insurance policy just like any other type of insurance policy contains limitations and exclusions that are not covered. Exclusions on an income protection insurance policy include becoming pregnant and having a child, a self-inflicted injury as well as war. Other exclusions include criminal acts, not following medical advice and living outside the United Kingdom.