• How would you cope financially if you were off sick and were unable to return to work?
• How would you continue to pay household bills and the mortgage?
• How would you support yourself and those who depend on your income?

• The aim of personal income protection is to protect your income throughout your working life. The maximum cover available is 65% of your normal earnings up to £50,000 and 1/3 of earnings in excess of that, less the current state long term incapacity benefit.

• The time between the commencement of illness and when benefit is paid is referred to as the deferred period, typically anywhere between 4 and 52 weeks. The deferred period selected should reflect the arrangement you have with your employer regarding the payment of salary when your are unable to work, but the longer the deferred period, the lower the premiums.
  
  If you are self employed, you will need to consider for how long your income will be unaffected by your inability to carry out your normal work.

• There is no point in over insuring yourself, as you will be required to provide evidence of earnings to make a claim. For this reason, it is essential that the level of cover selected reflects your current earnings and also any continuing benefits you might receive from a company scheme.

Not all Personal Income Protection plans offer the same level of cover.

Here are the main points for comparison

• Guaranteed or Reviewable Plans
  A guaranteed plan fixes the rate at which you pay at the outset. The only increase comes from an increase in cover to keep pace with inflation. With a reviewable plan, the rate can be altered by the company if claims experience is bad. This means you could end up paying more, even though you may never have claimed off the plan. The initial cost of the guaranteed plan may cost more, but it offers far greater protection.
  
  We can now offer you the option of either Guaranteed or Reviewable Rates. If you wish to save money in the short term and don't mind the risk that premium rate may increase in later years, you can opt for the reviewable plan. If you prefer the added security, we suggest you select the guaranteed plan.

• Level of Indexed Benefits
  Ideally, your cover should included the ability to index the benefits of the plan, both before and during a claim. In this way, the effects of inflation are counteracted and your benefits maintained in real terms.

• Definition of 'Incapacity'
  You need to be absolutely clear about the definition of 'incapacity'. If the plan will only pay out if you can't do ANY work, then this is far too wide a definition. Ideally, your plan should pay up if you are toally unable to carry out your 'normal occupation'.
  
  For some occupations, you may have to accept a definition of disability such as own or suited occupation. For manual occupations, an Activities of Daily Work definition is used. The definition will be stated clearly on your quote.

• How Much Does Personal Income Protection Cost?

It depends on your salary, benefit, occupation, deferred period and expected retirement age. Here are a few typical examples:

The guaranteed monthly premiums below are for a non-smoker requiring an annual benefit of £20,000 on the standard plan. The deferred period is eight weeks and the occupation class is 1

•  A Real Life Example (name not disclosed)

Mr. W..........
Age: 32 next birthday
Occupation: Computer Programmer/Analyst
Occupational Class: Class 1 select
Salary: £40,000 plus
Benefit: £15,000 per annum inflation protected
To Age: 65
Deferred Period: 13 weeks
Premium Rate: Guaranteed
Premium: £33.04 pm

This premium is discounted because the client applied for a benefit of less than 50% of salary

• Question: Is this Cost Effective Cover?

The total benefit which would be payable to termination age, if a valid claim was accepted immediately (assuming a constant inflation rate of 4% per annum) is £1,016,487

We think the facts speak for themselves.