Sometimes referred to as 'the forgotten insurance'. This is an extremely valuable insurance policy that many people do not generally think applies to them.

Why? For the simple reason that there is a general belief that the state will look after us if we are unable to work. Whilst this is true to a certain extent, the income that is received from state benefits is not going to be able to provide you with the same standard of living as if you were working.

We have put together an Income Protection quiz to allow you to test your wits against 10 common misconceptions about this cover!!

Question 1

Income Protection will payout:

A)
B)
C)
D)

Correct!

Wrong!

The correct answer is: A monthly benefit until you are able to return to work.

Income Protection is designed to support you while you are unable to work due to an accident or illness, until you are able to return to work or the policy terms ends. This means that your claim could last anywhere from a few weeks all the way up to your retirement age. An Income Protection policy will typically replace between 50-65% of your gross annual salary. You should take care if you receive any part of your salary as bonus, company car or any other benefit as this may reduce the amount of cover that you are eligible for.

Question 2

A standard Income Protection policy will not generally pay out a claim for:

A)
B)
C)
D)

Correct!

Wrong!

The correct answer is: Failure to follow medical advice, unemployment or redundancy.

There are some instances in which you would not be able to place a claim for Income Protection. These are generally focused around events that have been caused by yourself or where, with reasonable care, you could have avoided serious injury. This may not seem ideal but it is a relatively small list of standard exclusions that should not outweigh the other benefits of the policy. Income Protection will payout a claim for any illness or event that results in you being incapable of working, as assessed by your GP and the insurers medical team.

Question 3

My policy covers 60% of my salary which reduced from £50,000 to £40,000 when I recently changed jobs. I am likely to be entitled to claim:

A)
B)
C)
D)

Correct!

Wrong!

The correct answer is: £2,000 per month (£24,000 per year).

An Income Protection policy usually protects anywhere from 50-65% of your gross income. If your salary increases or decreases you must review your cover as it can impact upon eligibility for policy benefits. In this case the individuals income has reduced so he is no longer entitled to the higher benefit that was available when he earned more money. Unless you inform the insurer of the salary still paying the higher premiums associated with the higher benefit. At the point of claim the insurer will ask to see proof of earnings so it is imperative that you are accurate when detailing your income for cover. You may also want to consider reviewing your cover if your salary increases as you would be entitled to a higher monthly benefit on your new income details. You must also inform the insurer if you change occupation as this may impact upon the terms that they are willing to cover for Income Protection. * It's worth noting that some policies have a minimum guarantee benefit level and some don't need you to prove financial underwriting in the event of a claim.

Question 4

I am part of a Group Income Protection plan at work and have a personal Income Protection plan as well. If I am unable to work I can place a full claim benefit on both:

A)
B)
C)
D)

Correct!

Wrong!

The correct answer is: You may able to claim on both policies depending upon income and the individual policy cover levels.

Income Protection will pay a set monthly benefit based upon your gross earnings to a maximum amount typically between 50-65% (personal cover) and 75% (group cover). It is very important that you make sure that you do not over insure yourself with Income Protection cover. If you are part of a Group Income Protection scheme with the maximum benefit possible under the plan, you will not be able to then place an additional claim on a personal Income Protection policy. If the Income Protection you receive from work does not use up all of your maximum allowance for this type of policy benefit, you can top up the shortfall with a personal Income Protection policy. The same applies if you take out two or more individual personal Income Protection policies.

Question 5

You are how much more likely to be incapacitated and unable to work, than you are to die at a young age:

A)
B)
C)
D)

Correct!

Wrong!

The correct answer is: 5 times.

It is not something that we generally want to think about but many of us know someone close to us who has been unable to work due to illness or an accident at work. An Income Protection policy will typically replace 50-60% of your gross income if you are unable to work due to sickness or injury. Whilst this does not fully match your take home pay, it does cover a good chunk of it.

Question 6

I am an offshore worker. My occupation is high risk but health and safety mean that I am at no higher risk than someone working onshore. Income Protection terms for me will be:

A)
B)
C)
D)

Correct!

Wrong!

The correct answer is: dependent upon the insurers underwriting guidelines.

Unfortunately with this one it really does depend on your individual circumstance and who you place the cover with. When underwriting an Income Protection application insurers look closely at the occupation class of the person applying for cover. Typical occupational classes are: Class 1 (admin), Class 2 (shop workers), Class 3 (light manual, non-hazardous) and Class 4 (heavy manual, hazardous). An offshore worker will usually fall into the Class 4 category which would generally result in the highest premiums available for the cover. However some insurers will, in a sense, ignore the offshore status of your job and look only at the actual work that you do. So if you are an administrator, manager, chef, doctor, aerial rigger etc and would receive standard premiums working onshore, you would receive the same premiums even though you are offshore.

Question 7

I have been ill for two weeks and been unable to work. My Income Protection policy will usually pay out:

A)
B)
C)
D)

Correct!

Wrong!

The correct answer is: after the set deferred period.

In most circumstances an Income Protection policy claim will begin once you have been off work for a predetermined period of time, due to illness or injury. This can be anywhere from 1 day, 1 week, 4 weeks, 8 weeks, 13 weeks, 26 weeks up to 52 weeks. A good adviser should mirror your deferment period to match that of the sick pay you receive at work; if you receive 6 months full sick pay at work then an Income Protection policy should be setup to kick in after you are unable to work for 6 months. It is also possible to do split deferments on Income Protection policies to support your employment benefits; where you receive full sick pay for 3 months and then half sick pay for a further 3 months, an Income Protection policy should be arranged to pay a claim after 3 months for half of the policy benefit if you are unable to work, increasing to a full policy payout at 6 months once your sick pay ceases.

Question 8

I have Critical Illness Cover for if I fall ill, I do not need Income Protection. The two insurances are:

A)
B)
C)
D)

Correct!

Wrong!

The correct answer is: complementary.

Critical Illness Cover and Income Protection are complementary insurances as they both cover quite different things. Critical Illness Cover will pay you a lump sum payment if you are diagnosed with a condition at the severity set by the insurer; usually a minimum of 40 conditions. Income Protection provides a monthly income replacement whilst you are unable to work, up to the time that you are able to return to work or the policy ends (often your retirement age).

Question 9

A personal Income Protection policy payment is usually:

A)
B)
C)
D)

Correct!

Wrong!

The correct answer is: tax-free.

When you take out an Income Protection policy for a set monthly benefit, that is the exact amount that you will get, provided that you have no other Income Protections policies in place. So if you are insured for 65% of your gross income at £1,500 per month, you will receive exactly that when you place a successful claim provided that you are not claiming on multiple policies.

Question 10

I recently claimed on my Income Protection policy and after a few months felt much better and returned to work. I have been back at work for two weeks and the illness is back again, my doctor is signing me off sick again. My Income Protection policy is likely to:

A)
B)
C)
D)

Correct!

Wrong!

The correct answer is: repay the claim immediately, treating this as a period of linked illness.

Within set timeframes insurance providers for Income Protection will consider the recurrence of a condition as a linked period of illness. This will mean that they will continue to pay your claim as they have seen that you have tried to return to work and will not stigmatise you for this. It also possible that if you return to work on reduced hours due to your condition that the policy may pay a top up benefit to bridge the gap between your new salary and insured amount. Both of these situations are based upon the insurance provider you are with and their policy wording, so please check the policy conditions associated with your individual policy.

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So, how did you do? We hope that this quiz has helped to debunk some of the myths surrounding Income Protection and given you a better insight into this vital product.

If you would like to find out whether or not Income Protection Cover is right for you and your circumstances then please feel free to speak with one of our industry trained advisers on 0800 567 7450.

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