Premiums, Amount of Cover and Index Linking

Article published on 19th May 2008

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When it comes to your premiums (how much you pay for your insurance cover), make sure you get a policy with guaranteed rates. You don't want your otherwise cheap premium costs to suddenly jump up one day because of changes in the national economy or some internal financial issue with the company insuring you. Guaranteed or ‘fixed’ rates ensure that you won't find yourself labouring under the weight of your policy rather than being buoyed by it as you should be.

You should also think about how much cover you might need. Generally you can insure yourself tax free for between 60 and 70% of your gross salary, although you should ask yourself what your monthly expenditures really are before settling on a figure. As mentioned in previous articles, always be sure to factor in all the usual drains on your income (like food bills, utility bills, mortgage repayments and credit card repayments) in addition to more exotic expenditures like elderly dependents or children's education fees or whatever.

So work out exactly what you need to be covered for by looking at your current salary and everything that it gets spent on. If you fix on too high a figure you may find that the policy won't pay out in the way or at the speed that you need it to if things go wrong with your income.

Relatedly, make sure that your policy, like your income, is linked to inflation. £800 to £1000 per month may be sufficient cover for you in the contemporary economic climate but remember that insurance is for the long term and you have no idea whether this amount would be worth the same in terms of spending power in 20 or 30 years when you might need it.

If you do find yourself in a position where you need to claim remember that income protection insurance will only begin to pay out to you after you have been out of work for a fixed (and previously agreed) period of time usually between 4 weeks to 2 years, although you will get to choose. The longer you allow for this deferment period, the cheaper you insurance will be. So find out how long (if at all) your employer will pay you for sick leave and whether you have access to any other benefits, and agree to claim your insurance at the very end of this period thereby getting a better deal with your insurance.

Remember, your policy won't pay out while you are receiving payments from other sources.

Please feel free to contact one of our advisor's for friendly free financial advice on 0808 1782 777.

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