Insurance products are not the easiest things to understand and income protection insurance is no exception. With cumbersome key information brochures and the media citing stories of battles between consumers and insurers in specific contexts, it’s no surprise that many people misunderstand exactly what it is and what it specifically offers.
Here are eight important protection myths debunked, so the next time you hear about income protection, you’ll be able to separate fact from fiction.
Myth 1: It does not pay
As long as the insured has kept up with their monthly premiums and provided accurate personal information from the start, claims are almost always paid. In fact, in the UK last year, insurance providers paid out over 90% of successful claims. If you’re still not convinced and want to check the payout rates of specific insurers, most of them now provide easily accessible claims statistics on their websites.
Myth 2: It is too expensive
This myth is purely subjective. If he were a smoker in a high-risk job and wanted a very high level of coverage, his premiums would, of course, be expensive. However, for most, income protection is affordable and can cost as little as 30p a day. If you want significantly lower income protection insurance quotes, consider buying through a commission-free broker or extending your deferral period – the amount of time between filing a claim and paying the money. Premium rates are calculated based on your age, health, smoker or non-smoker, and occupation, so if you really want to lower your premium costs, it may also be beneficial to adopt a healthier lifestyle.
Myth 3: It’s a waste of money
When it comes to illness and injury, people can feel a sense of invulnerability, so it’s all too easy to see this type of myth getting around. But ask anyone who has used their income protection policy and you will be the first to debunk this notion. If you were unable to work due to illness or injury, the monthly facilities provided by income protection could become invaluable, providing the assurance that bills, loan repayments and any other expenses could continue to be financed during your time off.
Myth 4: It is not necessary if you receive benefits
Statutory sick pay and other benefits tend to pay no more than £400 a month, which for most would not cover rent or mortgage. However, an income insurance policy would pay up to 75% of your usual income, comfortably covering your living costs.
Some employers will provide a more comprehensive benefit than statutory sick pay. Therefore, it is important to check if this applies; as this may mean your deferral period may be extended, which in turn may lower your premiums.
Myth 5: It is the same as PPI
Although they may sound similar, income protection and payment protection insurance (PPI) are not the same products. PPI ensures repayment of a specific loan, while income protection is designed to cover a portion of your income. If you can’t meet your mortgage payments due to health issues, PPI would be available for this, but what about all the other unavoidable expenses? This is where income protection comes in.
Myth 6: It is not necessary if you have critical illness coverage
While critical illness insurance is important, unlike income protection, it would not pay if you were unable to work due to injury or if you developed a non-critical illness. For this reason, it may be worth considering income insurance alongside critical illness cover, as this would cover a broader range of eventualities.
Myth 7: It is not for you if you are self-employed
Self-employed individuals can obtain income protection insurance, but be prepared to provide the relevant documentation. If you’re self-employed, your income may be more variable, so it would be beneficial to periodically review your policy to make sure you’re covered for the amount of money you need.
Myth 8: It takes too long to apply
While this may have been true in the days of dial-up and telephone brokers, thanks to easy-to-use websites, it’s now easier than ever to find, compare, and buy income protection policies.