Income protection insurance will cover you for illness or injury. This means:

• Any long term serious illness that prevents you from working
• Any injuries sustained as a result of an accident (whether this be at home or at work)

The payments received from an income protection insurance policy could help to cover whatever you see fit, as they aren’t tied to a specific financial commitment.

Income protection insurance can help to cover a range of financial commitments, including:

• Mortgage payments or rent
• Household bills
• Family living costs
• Childcare costs
• Debt or loan payments (such as credit card bills)
• Leisure/travel costs
• Food shop
• Other essential costs

Income protection insurance won’t pay our for the following reasons:

• Pre-existing illnesses (if excluded from your policy)
• Death
• Unemployment
• Redundancy
• Self-inflicted injuries
• Injuries or illness as a result of alcohol or drug abuse

Income protection insurance can be taken out on a short-term or long-term basis.

• Short-term income protection insurance typically comes with a payment period of 1 - 5 years (this can vary between providers)
• Long-term income protection insurance has the potential to pay out to you up until you reach retirement, providing cover for your whole working life

Both options will cover you for illness and injury and could pay out up to 70% of your usual income.

Which one is best for you will depend on your personal circumstances and available budget.

Key information taken into consideration during the application process includes:

• Age
• Medical history
• Smoker or non-smoker
• Occupation
• Policy type (long-term or short-term)
• Length of payment period
• Length of deferred period
• Definition of incapacity

In terms of income protection, occupations are often split up into different ‘class groups’ based on risk.

Low risk occupations (for example, professional or administrative roles) can be seen as low risk and those in these professions can experience lower premiums.

Whereas higher risk occupations (such as those in the construction industry or those that work at height) may pay more for their premiums due to the increased risk.

It’s important to note that class groups can vary between providers, which highlights the need to compare multiple quotes to find the most affordable cover.

The price you pay for income protection insurance can also depend on which premium payment you choose. Common premium payment types include:

• Guaranteed - The amount you pay each month remains the same throughout the policy lifetime
• Reviewable - The insurer has the right to change the amount you pay each month, based on various factors (such as increased risk)
• Age banded - The price you pay will increase each year as you age

How much income protection insurance you need will ultimately depend on your personal circumstances.

The amount providers will pay out to you will depend on your income as they will pay out a percentage of this amount - often up to a maximum of 70%.

You may want to consider the following factors when taking out cover:

• How much you earn
• Your current savings
• What financial commitments you have
• Whether you have any other sources of income
• If you receive full sick pay
• Whether you have any other financial protection

An income protection policy will pay out to you once your deferred period has passed.

This means the policy won’t pay out to you straight away.

If you’re still unable to work after your deferred period has passed, your payments will commence.

An income protection insurance policy will pay out to you until one of the following happens:

• Your payment period comes to an end
• You return to work
• You retire
• Your policy expires

No, income protection payments are tax-free.

This is because you typically pay for cover out of your net income, which has already been taxed.

Yes, most policies come with a 30-day cancellation period.

This means that if you cancel your policy within 30 days of the policy start date, you should receive a full refund.

Cancelling a policy after the first 30 days means you may receive a partial refund or no refund at all.

All providers will have different cancellation terms and conditions, so you may wish to check this before taking out a policy.

While cancelling a policy is possible it should really only be the very last resort.

Your investment could be wasted if you’ve paid premiums into the policy and you’ll no longer be covered once the policy has been ceased