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Income Protection - Term & Deferment Period

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Income Protection - Term & Deferment Period

These are two of the largest decisions that affect the income protection premium. For example, if you were to set the policy term to expire at age 50 rather than 65 and set a deferment period of 1 year the premium would be vastly different to an expiry of 65 and a deferment period of 4 weeks.

Everyone's personal circumstances are different and most importantly their benefits at work. An employed person shouldn't even think about starting an income protection policy until they have checked their existing benefits with the employer.

Income Protection Policy Term

Some people only feel they need income protection insurance until they are 50 when their mortgage has been cleared. (In an ideal world) Income protection insurance doesn't have to have a term until the national retirement age even though this is normally what is recommended. Insurers can show you all sorts of statistics that will prove the older you are, the more illnesses you may have and the longer it will take you to recover. Therefore an income protection policy that finishes at age 50 is likely to be substantially cheaper than one that finishes at 65.

Income Protection Deferment Period

The deferment period is the initial number of weeks or months that you would need to wait before the income protection would start paying. Similar to a policy excess on a home insurance policy.

As already highlighted, the deferment period recommended is based on your circumstances. This is something you need to think very carefully about.

Employed - Some employers have better terms & conditions than others. Some even have Group Income Protection for their employees. The other extreme would be a smaller employer that only offers statutory sick pay (SSP). Somewhere in the middle you have an employee that would typically receive up to 6 months full pay, reducing to half pay from 6 to 12 months.

Using this as an example, the deferment period could be set at either 6 months or 12 months depending on outgoings and how someone could cope on half pay. Whether an employed person has group income protection or only SSP it is important to remember that there is no such thing as a job for life and employers will often only pay benefits that they have to. Never assume anything with regards to your sickness benefits at work or you may find out too late.

Self-Employed - Once again, everyone's circumstances are different. Someone that runs their own company with several employees will be much different to a sole trader who replies on their health to be able to do their job. A sole traders need is likely to be a lot more than someone that runs a company with reserves that may last a lot longer. Generally the more the need, the shorter the deferment period recommended.

Income Protection

Protect your income against sickness or injury with a tax-free monthly benefit
Insure up to 65% of your pre-tax monthly income whether employed or self employed
Multiple claims can be made over the term of the policy if you are unable to work
Choose your length of cover, which can provide until retirement if desired

Who should have Income Protection?

Employees who receive little or no sick pay from their employer if they are unable to work due to illness or injury
Self employed people whose income is dependent on them being able to work.
Homeowners with a mortgage or regular monthly bills that would still need to be paid.

Impartial Mortgage & Protection Ltd is an Appointed Representative of The Right Mortgage Ltd, which is authorised and regulated by the Financial Conduct Authority.

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