Q: What is Age related income payment protection insurance?
A: Many people are prepared to spend hours on end scouring the financial pages for details of investment opportunities that will subject their capital to as little risk as possible, but they rarely expend the same sort of energy on trying to protect their income.
This is highly illogical, because without a reasonable income it is likely to be hard to finance most of life’s necessities, let alone pleasures. Ask anyone who has tried to get by on State benefits! They are likely to have experienced a great deal of humiliation and spiralling debt.
It’s all very well thinking that these things only ever happen to other people, but government statistics show that around two million people of working age are likely to be off work for at least six months through sickness or disability at any one time. They also show that you are 19 times more likely to be off work for more than six months for health reasons than you are to die during your working life!
Additionally, there can be few people in the modern commercial environment who can claim to have a job that it is totally safe. So there is a very strong case for insuring your income against the possibility of suffering such misfortunes.
Anyone wishing to do so has traditionally had two basic choices. One has been to take out income protection insurance, which pays out a regular monthly income if you are unable to work because of poor health but does not cover unemployment. It will normally pay you claims benefit until you recover or, if you fail to do so, until your intended retirement date.
The other option has been income payment protection insurance (IPPI), which pays out a monthly benefit if you are unable to work as result of poor health or involuntary unemployment, but only for a maximum of 12 months per claim.
The involuntary unemployment cover also imposes highly prohibitive restrictions for the self-employed and excludes voluntary redundancy.
IPPI is simpler to arrange and to understand, because it does not require initial medical underwriting and disregards factors such as age, occupation, smoking habits and gender when calculating the premiums. But until recently many protection experts tended to feel income protection insurance represented better value for most younger people in reasonable health and relatively low risk occupations.
Now, however, the gulf between the two products has narrowed massively, thanks to new age-related IPPI product launched by our providers. This works along similar lines to other IPPI, but takes age into account when calculating premiums.
The younger you are the less you pay, and it is only the age at outset that matters – premiums will not increase just because you grow older once the policy has started.
Such pricing can make it very tempting to put up with the 12 month benefit cap, especially when you consider that this cover pays out after only a month and backdates payment to day one. Income protection insurance, on the other hand, typically does not start paying any claims benefit until you have been off work for six months.