Once you have decided to protect yourself against the risk of losing your income there are some options to consider.

An Indpendent Financial Adviser can guide you on these but if you want to know more now then read on.

The first decision is whether to protect against

• Unemployment

and or

• Disability caused by accident or sickness

Unemployement cover is straightforward and will pay you a monthly income for one year with most insurers.  The are also a small number of insurers who offer an insurance contract with a benefit paid for up to two years.  If you have any indication from your employer that you are likely to become unemployed you cannot apply for cover.  For example if you are subject to disciplinary action or have any notice of redundancy.  Temporary worker and employees in a period of probation are also not eligible.

Accident, sickness, injury and disability cover is available in two different forms

• Short term - With benefit paid for one or two years
• Long term - with benefit paid to retirement age

Short Term Income Protection (Including Mortgage Payment Protection Insurance)

Short term policies are usually mortgage linked and are often sold when you take a new mortgage.  If you have such a policy it is well worth asking an Independent Financial Adviser to review it.  The cost and quality of cover varies enormously between companies and you may have the opportunty to make a substantial improvement.

The "deferred period" is the amount of time you have to be off work before you can claim.  The usual options are 30 days or 60 days although some policies were offerred with 90 day deferred periods.  Some insurers have "back to day one" cover.  This means that after the deferred period, the benefit is backdated so you receive the same amount of money as if you had been paid it from day 1.

 The payment period is the amount of time for which your benefit will be paid.  Most policies pay a monthly benefit for 12 months but some offer policies that cover you for 24 months.  These are not necessarily as expensive as you might think and it is worth getting a quote.

Amount of cover - typically this will be the amount of your monthly mortgage payment but if your mortgage costs have risen with interest rates it is worth increasing your cover to match.  Also most insurers will allow you to insure an extra 25% over and above your mortgage payment to help with other costs of daily living.

Long Term Income Protection

Financial Adviser Hertforshire knows of no company offerring long-term unemployement protection.

Against the risk of accident, sickness, injury or disability, you can insure your income for your entire working lifetime with a benefit paid right up until you retire.

The policy term is also the benefit term so for example you will have a long-term policy that will continue until you reach your chosen retirement age (Usually 60 or 65).  The premium is set at the start of the policy.  If you are unable to work due to illness then the benefit will start to be paid and will continue until the end of the policy term.  This means that the total benefit paid can be very high making such policies very good value for money.

For example a claimant aged 30, with £20,000 per annum benefit paid to age 65 will receive a total of £700,000 if he or she is never able to return to work.

Imagine the difference between a working lifetime income of £20,000 per year compared to state benefits.

The deferred period (the time you have to be ill before you benefit starts) can be as little as one month and up to 12 months.  The longer deferred periods work well when policyholders have sickness benefits paid for a period by their employer.  For example many people will get full pay for three months so only need the insurance to kick in if they are off work for longer.  The longer the deferred period the cheaper the premium.

Index-linking is important to consider for a long-term policy since fixed incomes are eroded by inflation.  At 3% per annum indexation for 30 years an annual benefit of £20,000 per annum will grow to £58,500 per annum!

Your occupation will effect the premium since some are higher risk than others.  Ideally you want a policy that will pay if you are unable to do your own occupation.

Financial Adviser Hertfordshire recommends you consult an Independent Financial Adviser to ensure you get the best and most suitable policy with the options that are right for you.