Income protection insurance is designed to give you regular financial support if you can’t work due to an illness. But along the way, there are some benefits, especially those given by the state and the employer, that undergo radical changes. This post discusses some of the benefits and how income protection affects them. Let’s get started.
How income protection insurance affects state benefits
If you’re unable to work due to illness or disability, you may be entitled to state benefits. Recently, the UK’s benefits system has undergone some changes, with an aim to consolidate all the benefits available into a single system known as Universal Credit. With that change, it means that the state benefits claimed can affect the sum paid out as a benefit from the income protection insurance.
Other income protection insurance factors that affect benefits
Taxation
Although the benefits payable for income protection insurance are normally tax-free, the insured is not off the hook yet. The tax relief may be reduced significantly, such that others like pensions contribution may no longer be available.
Benefit limits
Benefit limits refer to the capping of benefits payable to policyholders to a certain percentage of their earnings. The standard limit is usually around 60% of gross earnings, although it may be less for higher earners.
Proportionate benefit
Some policyholders may be hesitant to return to work even after their health improves. Aware of this fact, many policy providers normally offer the insured persons reduced benefits should they take a part-time or low-paying job while fully recovering their health. The aim is to encourage them to return to work as soon as possible.
Change of occupation
Suppose you already have income protection insurance and decide to change your occupation or become unemployed while the policy is still valid. In that case, your carrier may need to adjust your premiums to take care of the new risks. This will affect your benefits because different employers have different benefits systems, and the salaries also vary.
Note: Ensure you share your new move or current state with your provider as soon as possible because some may invalidate your policy if you change occupation or become unemployed.
Benefits from external sources
If you’re receiving income from other benefits, for example, the medical benefits or worker’s compensation, it affects the income protection benefit. The money received from external sources is usually taken into consideration when calculating maximum universal credit payment.
What’s an alternative to income protection insurance?
Life insurance’s primary objective is to protect your loved ones financially if you fall ill, get an accident (at work or outside), or pass away. Income protection insurance does an excellent job of covering the first tragedy. But what if the worst were to happen and you lost your life? Is there a cover for such?
You bet there is!
If you want to provide for your family even after you’re gone, family income benefit insurance is the policy for you. This policy provides regular income to your loved ones for a set period if you pass away within the contract term.
Family income benefit is one of the best policies for young families whose children still have a long way to becoming fully independent. What’s more, it’s straightforward, easily manageable (since it doesn’t pay in a lump sum), and tax-free.
Conclusion
Income protection insurance remains one of the best life insurance products despite its benefits now getting impacted by factors such as consolidation of all benefits by the state. What’s more, if you don’t have other means like sufficient savings, supplementary income, or investments, this policy can offer you the financial support you need when health issues strike.
If you have any other questions concerning income protection or related insurance covers, feel free to ask and we’ll be happy to assist.