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Guide to income protection insurance:
With redundancies on the rise and the growing threat of recession
most UK workers need to plan how they will protect their bills
if they lose their jobs.
Income Protection Insurance covering accident, sickness and
unemployment/ redundancy insurance (ASU) and Mortgage Payment
Protection Insurance (MPPI) can be expensive but it could be
a small price to pay for piece of mind during a difficult time
such as redundancy or unemployment.
Income Protection Insurance policies pay out a percentage of
your monthly income or mortgage payments, typically for up to
12 months, in the event you are unable to work due to unemployment
or disability. But prices vary between insurers and though you
may be tempted to go with, for example, a mortgage lenders product,
the expert’s ay it pays to shop around and obtain income
protection insurance from an independent advisor.
Financial help from the Government after unemployment/redundancy
is limited, but many don’t realise this until it is too
late. Mortgage cover, for example, is means-tested and if you
have more than £8,000 in savings you will receive nothing.
For those that do receive help from the Government it only
covers mortgage interest and if you took your mortgage out after
October 1995 there is no help for the first nine months of unemployment
or disability.
Income Protection Insurance and Mortgage Payment Protection
Insurance offers a safer alternative. And though it is not cheap
it will keep the roof over you and your family’s head while
you look for work.
The cost of income protection insurance and mortgage payment
protection insurance policies vary depending on the level of
cover. Most vary from between £4.50 to £5.50 per
£100 of cover.
Jonathan Fennel at London based Timothy James financial advisors
recommends people sit down and assess their risk and what level
of cover they require before taking the plunge with any income
protection insurance or mortgage payment protection insurance
policy.
"It depends on the type of job and what savings you have,"
he says. "For those with significant cash reserves or liquid
assets or those who are fairly confident about their employment
and would get some payoff in the event of redundancy –
an income protection insurance policy may not be necessary."
By saving money in a deposit account each month instead of
an income protection insurance policy you could build up a substantial
sum, which you could use in the future if you don’t lose
your job.
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