Income Protection

What is it?

Income protection is a type of policy that provides a regular income if you are unable to work because of sickness or disability and in some cases Unemployment.

There are 2 types of policy used to protect income one is referred to as ASU which stands for Accident, Sickness & Unemployment cover.

The other is called IPP which stands for Income Protection Policy which is sometimes referred to as PHI or Permanent Health Insurance.

The policies are often thought of as an either or answer to income protection, however, in many circumstances they can be used more effectively in tandem to give a cost effective solution to the person insured.

Why do you need it?

If you are unable to work due to an accident or a sickness then your income will disappear and unless you have an emergency fund you could very soon be faced with some difficult decisions about your lifestyle.

Income Protection should be considered if you would not be able to maintain your standard of living on State Benefits alone.

If your regular outgoings are normally met from income, then taking away that income can have drastic and wide ranging implications including inability to meet mortgage and loan payments, as well as basic household bills and living costs.

Things to bear in mind

Many people make the mistake of thinking that should they fall ill, have an accident or lose the ability to work,the State will step in and sort it all out. Wrong ­ the rules governing sickness benefit claims have changed dramatically.

Before April 1995, you could qualify for long-term sickness benefit if you were rendered incapable, by illness or disability, of doing your own job of work. Now the rules state that you will only qualify for long-term sickness benefit if you cannot do any job of work.

In other words, only if you are completely incapacitated will the State pay you any benefits. This means that, to all intents and purposes, there are currently no long-term sickness benefits in the UK.

Many people realise the importance of the various types of insurance but are unable to afford to cover all eventualities. In these circumstances it is vital to plan your protection carefully in order to use your budget effectively.

It is important to ensure you take out the policy that best suits your circumstances, NOT the one that provides the cheapest premium!

What is ASU?

ASU stands for Accident, Sickness & Unemployment cover and is a policy that provides a tax-free monthly income if you are unable to work as a result of medium term sickness, incapacity or unemployment (normally 30 days or more). ASU is usually a "short term" solution with policies typically covering 12 to 24 months only.

ASU can be an effective way of reducing the cost of a more permanent income protection solution such as IPP.

If an ASU policy is used to cover the initial 12 months of any sickness or disability, the deferment period of an IPP policy can be extended to 12 months which will significantly reduce the cost of the IPP policy.

What is IPP?

IPP stands for Income Protection Policy and is sometimes referred to as PHI or Permanent Health Insurance which has been the cause of some confusion in the past.

IPP is less well known than life insurance but potentially has more uses because it is designed to replace a proportion of your income should you be unable to work through accident or illness.

This benefit can be paid until retirement age, until the end of the policy term or until you are able to return to work, whichever is the earlier. Consequently, whilst you are rehabilitating or coming to terms with changes in your life, your financial position is more secure.

IPP is considered by some to be an expensive insurance, however, it comes with a choice of deferment periods and careful planning can extending this to meet your own requirements which will reduce the costs. The deferment period can be extended based on a number of factors such as the length of time your employer will continue to pay you full or part pay, the level of savings you have or in some cases the use of an ASU policy.

You need unbiased advice.

If is essential that you get good advice about your insurance requirements because getting it wrong can have major implications for you and your welfare. Speak to our protection advisers today for a no obligation consultation and quotation for your insurance solution.

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Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

We offer all our clients a free initial consultation after which a non refundable commitment fee of £95 will be charged with a further £250 payable on completion based on individual client circumstances. We also offer a fee only option whereby we charge a 2% broker fee on the amount borrowed and any commission derived from the lender is rebated back to the client.

The overall cost for comparison is 7.9% APR

Riverside Mortgages Ltd is registered in England and Wales. Registration Number: 5978086