Income protection insures part of your earnings against illness or accidental injury. It is designed to enable you to cover your essential outgoings if you become ill or have an accidental injury that prevents you from earning a living.
Although income protection contracts cover illness and accidental injury it is important to remember that you are covering your income not your health. If at the time of illness or accidental injury you are not working or you suffer no loss of income an income protection plan will not pay out.
There are two types of income protection contract in the UK – Pure Income Protection and Holloway Income Protection.
Pure income protection
Pure income protection contracts provide you with a continuing income should you become unable to work and earn a living due to illness or accidental injury in exchange for a monthly premium. The level of benefit you are eligible to receive will vary between providers but it is typically between 50% and 70% of your Gross income. (Your income before deductions)
Holloway Income Protection
Holloway Income Protection works in the same way as a pure income protection contract. You pay a premium and the contract provides a continuing income in the event of a claim.1 However, unlike a pure income protection contract a Holloway Income Protection contract provides the option to receive a share in the surpluses made by the Society.
This builds into a capital sum which is held in a capital account for you over the lifetime of the contract and is paid out as a tax free lump sum2 at the natural end of your income protection contract (usually at retirement).
This is available because Holloway providers are mutual organisations which means that they are owned by their Members (i.e. those that hold a contract) and have no external shareholders to pay dividends too. Therefore any surplus that is made can be distributed to its Members.
Cirencester friendly is a Holloway income protection provider which means the option to participate in the Society’s surplus scheme is open to all our Members and can be opted in or out of at any point during your contract.
1. Subject to claimant meeting the claims criteria - Cirencester friendly paid 94% of claims in 2010 click here to see our 2010 Claims Statistics Card.
2. This is based on our understanding of the current law and this could change in the future.