Income protection for businesses and individuals

Sometimes in our modern world the line between the individual and a business is a fine one. What is sure is that whether you are an individual or a small business, it might be advisable to learn more about income protection.

What is income protection?

It is a form of policy that will provide you with a specified monthly income under certain circumstances.

You may use that income for whatever purposes you think fit, though it is typically used by individuals or businesses in order to meet their regular outgoings or in some cases, to continue their relatively normal day-to-day activities.

What circumstances do such policies cover?

It is always important to formulate an answer to that question by looking at the detail of an individual policy rather than by reading a general article; however, you might find that typically the cover relates to:

• serious illness;
• accidents;
• in some cases, unemployment through compulsory redundancy.

 How long will the policy pay out?

That depends upon the cover you select and pay for.

In some situations, it may continue for some years and until such time as you are able to return to work or have reached your normal retirement age.

Note that in the case of unemployment and redundancy cover, the maximum pay out period may be restricted by the policy to a specified period of time, perhaps typically around 12 months maximum.

How does this relate to critical illness insurance?

Broadly speaking, critical illness cover results in a lump-sum payment to the policyholder.

By contrast, income protection relates to the payment of a specified monthly sum.

There may also be differences in terms of the conditions covered and it might, for example, be unusual to find any form of redundancy protection associated with the benefits of a critical illness policy.

How much would I receive each month?

That will be based upon two things:

• the type of policy you have selected, the cover it provides and how much you have paid for it;
• typically, the maximum sum payable is usually expressed as a significant percentage of your previous monthly income.  Typically you cannot take out a policy that will provide you with a monthly income that exceeds your previous income.

What happens if I am offered an alternative but lower-paid position due to my illness?

This is an exceptionally important aspect that might vary significantly from one policy to another.

Some policies operate under what is called own occupation cover.

Essentially, that means that you would be eligible to claim and receive payments if the circumstances meant you were unable to continue with your existing occupation.

However, some policies may use the rather softer definition of suitable occupation.

With that type of policy, you may need to bear in mind that potentially the policy provider might require you to take a different occupation with potentially a different income level, providing it was deemed to be suitable for you and your new condition.

It is something worth examining closely in the detail of a potential policy before you decide to purchase it.