There are many different kinds of products on the market that will protect your income if you have an accident, become ill or are made redundant, three of them are described below:
Mortgage Payment Protection Insurance (MPPI) - Mortgage payment protection insurance pays out an equivalent amount to your monthly mortgage payment if you cannot work due to an accident, sickness or redundancy. This policy usually pays out for a maximum of twelve months.
The benefit of a MPPI policy is that it will not affect your state benefits. If you are older or have health problems then this cover may be cheaper because these plans are not individually underwritten, unlike other plans are.
The downsides of MPPI are that the policies have many exclusions. An example of one is that you will not be covered for existing medical conditions. It is important at the commencement of any insurance policy that you let the insurer know of any condition that may affect your insurance. Taking out this insurance may also reduce what you could get from your employer’s insurance as your MPPI will be taken into account.
Income Protection (IP) - Income protection (IP) is also known as permanent health insurance (PHI).
Income protection will replace 50 to 60 per cent of earnings that you have lost due to been off work due to sickness, an accident or injury. Most policies will start to pay out after a number of weeks’ illness, which is known as the deferred period.
One of the many benefits of taking out income protection is that you can choose your own deferred period, ranging from four weeks to fifty two weeks. If you decide to choose a longer period, this will make your policy cheaper. Most policies will run until your retirement date. Policies are cheaper for people who are in good health and work in office based jobs, as they are less at risk of injury.
The negatives of an income protection policy are that women pay more than men, also, if your employer pays sick pay or you are on state benefits these may be reduced if you have a private IP policy. Insurers can also cut the amount you get from the policy if your total income exceeds a pre determined maximum level.
Critical Illness Cover (CIC) - Critical Illness Cover is a product that should be purchased in addition to income protection cover, which is described above. This cover is not classed as a core product but more of a luxury that not all can stretch to. It pays out a lump sum if you get a serious illness such as cancer or if you have a heart attack or stroke.
The major advantage of taking out cover such as this is that if you are seriously ill and has a large debt to pay, it eases the worry, as you could use the lump sum to pay off the debt.