Income Protection Insurance & Pre-Existing Entitlements

Article published on 9th July 2008

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When and why should you get an Income Protection Insurance policy and what help is already place from your current employer and the state in case you fall ill.

If you are working for a company and you become sick or suffer an accident it is possible that your employer will pay you to the full amount you would have earned if you were still working every week or month for a fixed period of time. Indeed, most employers are bound by law to hand over statutory sick pay for up to 28 weeks, although this is unlikely to match the normal amount that you would earn if still at work.

After this period is up and if they don't have any insurance or savings, chances are someone who is out of work because of illness would have to rely on state benefits to see them through until they are able to work again.

As discussed in previous articles, some employers arrange for a group Income Protection Insurance policy for employees as a benefit of the job, which can pay out more money even after the mandatory sick pay has run out.

Naturally, if you are self employed your options tend to be far more limited. State benefits are not very generous precisely because it is public money, not private investment. If you claim a disability allowance or incapacity benefit of some kind it is more than likely that you will see your income drop quite considerably to a level that the state deems to be the minimum you require to survive..

Similarly, a private insurance policy, like an Income Protection Insurance policy, will not generally allow you to profit from being ill or unable to work. They aim to encourage you back into gainful employment as soon as you are able.

The total amount of your income that you are likely to be able to replace with an Income Protection Insurance policy is broadly comparative to the after-tax income you have lost, minus the amount of whatever state benefits you might be claiming, which more often than not translates into about 55% of your income before tax.

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