FAQs – Income Payment Protection Insurance

What does it do?

If you are unable to work because you are ill or recovering from an accident, or if you are involuntarily unemployed, the benefits of this insurance provide a replacement monthly income to make up for some proportion of the normal income lost through your being out of work.

How does it differ from mortgage or loan protection insurance?

Whilst both mortgage and loan payment protection insurance are means for safeguarding specific financial commitments, income payment protection insurance provides a replacement income which can be spent on any number of bills and obligations – from credit card repayments, the mortgage or rent, council tax, utilities and food and clothing. This makes it probably the most flexible of the various types of payment protection insurance.

How much replacement income could I expect in the event of a claim?

Flexibility is the key word once again, since the amount of replacement income is determined entirely by the policy holder at the start of the cover. It is simply a question of choosing the level of income that would be needed, or the cost of the monthly insurance premiums that can be afforded. Of course, most policies will have an upper ceiling on the maximum amount of income that can be insured. Typically, this proportion will be 50% of the policy holder’s normal salary (before tax and other deductions) or £1,000, whichever is smaller. Despite this limitation, however, a replacement income of up to £1,000 could make all the difference between managing to cope with the setbacks of accident, sickness or unemployment and the alternative of losing control as you plunge further and further into debt.

So I could continue to receive a replacement income from the insurance indefinitely?

No, this is not what the cover is designed to do. Income payment protection insurance is essentially a relatively short-term measure to comfortably tide you over while you recover from the illness or accident which is keeping you off work or to provide the temporary support you will need while looking for alternative work after being made compulsorily redundant. With this principle in mind, most policies will pay the benefits due under the policy for a maximum period of up to 12 months.

Am I eligible?

The overwhelming majority of working people will be eligible for income payment protection insurance. You will need to be of working age (between 18 and 65); permanently resident in the UK (or Channel Islands or Isle of Man); actually working (not on sick leave) on the date the insurance cover starts; and to have been in regular employment for at least six months prior to the start of the cover.

What exclusions am I likely to find hidden in the small print?

First of all, no consumer should feel that any aspect of their insurance contract is “hidden” away in the small print – and least of all any of the exclusions attaching to the cover. It is essential that you read and understand the documentation that comes with the policy and be certain to question the insurance provider about any details that remain unclear. Any policy is going to have a schedule of exclusions and, in the case of income payment protection insurance, these are likely to refer to any pre-existing medical conditions from which the policy holder may suffer and, in the event of claims arising from unemployment, the reasons for the policy holder becoming redundant (these provisions will be designed to ensure that unemployment was purely involuntary and arose through no fault or decision of the policy holder him or herself).

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