Income protection insurance does pretty much what you would expect it to do – it insures against loss of income. IP will pay you a monthly income if you become unable to work because of illness or accidental injury for a prolonged period of time.

In general, the income starts after you have been unable to work for an agreed period. This is normally around three to six months but some policies will differ.

The insurer will continue to pay income until you are back on your feet and can return to work or when the policy ends.

When you set up an income protection policy you can choose the amount of benefit you would get if you claim – which is typically up to half of your gross earnings, although again this will depend on policy provider. Unsurprisingly, the larger the amount you choose, the higher premium you will have to pay.

While it's generally straightforward to apply for income protection it's important to make sure you read the small print. It's essential that you answer all of the medical questions in the application carefully, accurately and truthfully to the best of your knowledge and belief.

This is critical. If there are any mistakes, your insurer can refuse to pay out. There will also be maximum to the amount of income you can claim – and typically this again will be around half of your gross earnings.

If your income is flexible and goes down as well as up, you should check that you are not paying for more cover than you would be able to claim for.

Income Protection policies can vary significantly between providers but generally the premium that you pay and the level of cover that you receive will depend on your occupation and lifestyle. Insurance is all about risk so the riskier your occupation and lifestyle, the higher the premiums you can expect.

Is it right for me?

The credit crunch has squeezed everyone's pockets but the risk of having no income could be devastating, particularly if you have debts to pay.

It won't happen to me

Don't count on it. Around one in four people will suffer a critical illness at some stage in their life. Those aren't great odds. As of August 2008 there were more than two million individuals unable to work for more than six months due to illness or injury. Over half of these had been claiming benefit for five years or more.

Meanwhile, a quarter of all adults – 3.5 million individuals aged between 45 and 64 – report having long-standing disabilities that limit their activity.

I have insurance already

Have you got enough cover in place? Maybe you have Mortgage Payment Protection Insurance but that will only cover the cost of the mortgage. How are you going to pay other debts or maintain a lifestyle? Income protection ticks all the boxes in terms of mortgage, debt, living expenses and lifestyle.

And remember that recovering from an illness and getting back to work can take time. Whereas MPPI will typically only cover up to a maximum of two years, Income Protection can last much longer, depending on the policy.

The key difference between MPPI and Income Protection is that MPPI is really only designed to cover a short period of time.

Income Protection on the other hand is long-term and is designed to pay out a tax free income to replace employed or self-employed income which has ceased due to inability to work as a result of illness, injury or disability.

More to offer

Another benefit of Income Protection are the added benefits which come with certain policies. For instance as well as financial support some providers offer rehabilitation support, private medical treatment and others even pay for operations to help speed recovery. A great example of this is the Helping Hand from Bright Grey.

If you need any help or advice please call 08445 045196 and we will be happy to help. Remember we offer free advice for all of our services including mortgages, remortgages, life assurance, critical illness cover, income protection, secured loans, bridging loans, buildings and contents insurance, and many other finance related services.