I thought I'd dispel some common myths you may have seen in the media so you're well informed about this type of insurance,
Myth 1 - Insurers never pay out on Income Protection claims
There has been a marked improvement with the number of insurers being transparent about their claim payout rates, which is good news for everyone. As a rule of thumb, always ask a company what their payout rates are and choose ones above 90%. Plus, always ask how quickly claims are paid out as this is the real test of any insurer.
Myth 2 - There is a deferment period with Income Protection
Organisations called Mutual Societies provide 'Holloway contracts' which are a day-one policy with no deferment periods, meaning you'll receive an income from the first day of illness/injury. Great news if you're self-employed as your bills don't stop coming just because you're ill.
The Holloway contract is named after George Holloway, a 19th century philanthropist, providing a cash lump sum on maturity of your policy because profits are shared between members.
Myth 3 - I have Critical Illness cover so I don't need Income Protection
This is a common misconception. Critical Illness provides protection against serious illnesses such as cancer and pays a cash lump sum to pay off the mortgage, for example. On the other hand, Income Protection, covers many illnesses from short term Swine Flu to a longer term injury or illness and provides a monthly, tax-free income.
In an ideal world, you would probably choose both insurance types. But what's more important is that you have a plan to cover your livelihood and will be able to pay your bills if the worst happens.
Myth 4 - I'm self-employed and it's too expensive
Some self-employed people are put off Income Protection as they think it's too expensive. However, there are many good value starter products on the market to choose from and you can decide on the level of cover. I would advise getting minimum level of cover if money is tight - as a little is better than nothing at all.
Myth 5 - You'll get penalised if you work in a specific sector or if you smoke
Not all insurers penalise you for being a smoker or having what could be deemed as a high risk job. Look out for Holloway style policies as there are no increased premiums for occupation, sex or smokers.
David Thompson is CEO of DG mutual - Income Protection specialists helping self-employed professionals to protect their income since 1927.
DG mutual paid out 99% of Income Protection claims for the third year running. As a Mutual Society, DG mutual has no shareholders but instead pays out a share of the profits to all members. http://www.dengen.co.uk/live/news/news.asp
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