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What is income protection insurance?

Income protection insurance is a type of insurance that can act as a safety net if you become injured or too ill to work. While you are not being paid by your employer, your protection insurance can help ensure you receive a regular income.

Depending on the length of your policy, income protection insurance can cover you until you return to work or reach retirement. However, income protection might not pay out if you are made redundant.

Income protection insurance is not the same as payment protection insurance (PPI). While payment protection helps you pay a specific debt, with regular repayments made to the lender, income protection pays you a tax-free portion of your income. 

How does income protection insurance work?

Income protection insurance works by paying out an agreed percentage of your usual wage if you are unable to work because of injury or illness. This is commonly somewhere in the range of 50% to 70%.

The funding will continue until you return to work or retire, or for a fixed amount of time depending on the terms of the policy. 

How much does it cost?

The cost of your income protection insurance will depend on your general health, including smoking habits, and what level of perceived risk you have, depending on your work environment.

Generally, insurers will group job type and risk into four separate categories. As you would expect, the more at risk you are of acquiring an injury at work, the more you will pay for your income protection. This is because you may be more likely to make a claim than lower-risk workers.

 

 

Want to learn more about protection?

Visit our protecting yourself and your family page to find out how expert advice could help you.

What is income protection insurance? | Lloyds Bank