Guide to Income Protection Insurance – part 2 of 5
Income protection is at the centre of much media debate, yet there are some unquestionable benefits to taking out a policy. Let's take a look at the positives and negatives of taking out a premium.
The Pros and cons of income protection insurance
The advantage of income protection speaks for itself - you have the peace of mind that if you were to fall ill, suffer an accident or be made unemployed, your debt repayments would be covered. State assistance is limited and this can leave you open to huge problems if the unexpected happens.
Government statistics showed that 755,000 people were made redundant in the UK from June 2002-May 2003. That works out at more than 3,000 every working day. On top of that we are relying on credit more and more with more than £1bn outstanding on mortgages, loans and credit cards at the end of July 2004 and the Citizen's Advice Bureau showing that the average household has debts of £10,700 - excluding mortgages.
With these statistics it's easy to understand the importance of covering your debts, especially as about half of the UK population has £600 or less in savings. Income protection can give you peace of mind.
On the downside, the main negative point associated with income protection is how much it costs. The policy (regularly referred to as "payment protection insurance" in this instance) is usually sold alongside a loan or a credit card. Lenders make it sound compulsory but the fact is that income protection is completely optional. Make sure you always read the small print. With credit cards in particular it's not unknown for companies to 'hide' charges for your insurance among your purchases. Always check and double check that you're not paying for anything you don't want.
Consequently, it is best to shop around for the best income protection deal independently. Don't assume that just because you are getting a good deal on a loan or credit card that this company's insurance will be the best too. Take a full overview of the market.
In part three we'll examine how you can decide if an income protection policy is right for you.
Income protection guide part 3 >>>
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