Answered by Andrew Jenkinson
How Much of Your Income Can Be Covered?
The answer to this question really depends on what type of Income Protection policy you are referring to.
With short-term plans (paying out for up to 12 months), the vast majority will allow you to cover a maximum of 65%t of gross (pre-tax) income. However, although uncommon, some short-term plans have started to allow up to 70% of earnings to be covered.
For long-term protection plans (which can pay out until retirement) it is still possible to cover up to 65% of gross earnings with a limited number of insurers. However, the maximum level of cover with a large number of insurers in this market is 55% of gross earnings.
Insurers Quote at 50% Income Protection…
Thus, in order to allow all Income Protection insurers to provide competing quotes the amount of cover should be set at a limit of 50 per cent of pre-tax earnings, although you can go higher if you really need the extra cover.
Given the income limit many insurers impose it is natural to start looking at the maximum amount of cover that can be taken out but it is often better to really think about how much cover you actually need.
For example, if your expenses are £1,500 per month do you really need to pay the extra premium for £2,000 worth of cover? In most cases it is better to think about how much income insurance cover you need in terms of monthly outgoings, rather than income.
Frequently Asked Income Protection Insurance Questions
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