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Saturday, September 23, 2023

Do I need income protection or life insurance? 5 key questions answered


Not sure if you need life insurance or income protection insurance? It’s a common misconception that if you have one policy you won’t need the other, however both policies are beneficial at different stages in your life.

Having life insurance is important for after you pass away as it can financially support your loved ones and can help cover any financial outgoings left behind.

Income protection is a type of insurance policy that makes sure you get a regular income until you retire or can return to work (if you have had to stop working due to certain circumstances, such as illness or injury).

Whether its income protection you need or life insurance or both, that will be down to your own personal circumstances. Keep reading as below we explore in details what both insurance policies have to offer…

Who is it for?

Having Income protection can help anyone who is employed by replacing lost income if you become too ill or injured to work.

There can be multiple circumstances where you may need it, for example: if you don’t have access to sick pay or if you can only take unpaid leave, if you have no savings to support you, if you can’t risk losing an income (having a family to support) or perhaps being self-employed.

It is also encouraged that high-risk jobs (such as construction based or working with dangerous equipment) have an income protection policy as you may run a higher risk of needing to make a claim, although, because of this you may pay higher premiums due to the increased risk.

Regardless of your occupation, life insurance is necessary for anyone. One of the main reasons for securing life insurance is to relive the financial stress for family and friends after you pass away.

It is also very beneficial if you are a main breadwinner in a family, if you have a mortgage or house payments and if you have any financial debts or perhaps you just want to be able to have funeral costs covered with an inheritance for your children.

For our UK audience leading insurance broker Reassured have created this comprehensive income protection vs life insurance 2023 guide, where you can also compare quotes free of charge.

When does it pay out?

Income protection essentially provides regular payments that replace part of your income if you’re unable to work due to illness or an accident. Rather than a lump sum pay out, you’ll receive monthly (tax-free) instalments until you return back to work, however, this does not cover unemployment.

Life insurance, on any policy, will only pay out when you have passed away. This will be the end of your policy, unless you have a term-based policy where cover will be for a set period and a pay out will only be made if you pass away during this time. The funds will be paid to your loved ones which will help your family cover essential costs and anything you had organised to be covered (for example, a mortgage or funeral).

How much is paid out?

You may assume that your employer will continue to give you some level of income if you’re off sick. However, this may not always be the case. That’s why it can be important to secure income protection, especially if you are in an occupation where you are more likely to make a claim. Typically, the pay out is a little less than your usual income; this can range from 50-70%, of your usual annual earnings but can depend on your policy and provider.

There can be a variation of how much your lump sum pay out will be as you have the freedom to choose a sum assured that best meets your needs, it can also depend on your policy and how much you have organised. Although, the cover amount (sum assured) could be a maximum of £1,000,000.

Who benefits from the pay out?

Your income protection pay out will be paid directly to you to cover living costs that you that you may struggle to keep up with. It can also be beneficial if you have many financial commitments and a family to provide for.

In the event of your passing, the lump sum will go to whoever you have organised, this is typically family members to help cover financial debts you wouldn’t want to leave to others. It can also prevent grieving loved ones having to organise a funeral or struggling with a missing income.

How can I secure a policy?

Regardless of which type of policy you are planning on securing, you can save money by comparing quotes. Every insurer and comparison website will offer different prices and options.

By using a regulated broker, you could have access to a professional agent who can do the hard work for you and find your best price for a policy (or policies) suited to you.

Alternatively, if you know the policy type you require why not compare quotes using a comparison website. Whichever method you choose to secure financial protection why not seize the day and enjoy reassuring peace of mind that your loved ones are provisioned for whatever the future may hold.

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