October 10, 2022
If you were unable to work tomorrow due to ill health or an accident, who would pick up your financial responsibilities and how would you and your family manage? It is estimated that around 250,000 people leave employment each year due to them experiencing ill health and if you are the main or only earner in your household then this could have disastrous consequences on your longer term financial plans.
The pandemic has certainly taught us all that ill health can affect anyone at any time, but despite this, research by Zurich in March 2022, shows only 6% of UK workers have income protection.
This compares to an estimated 41% who have life insurance and 16% who have private health insurance (Which.co.uk 2022).
Is it then a lack of general financial awareness or a lack of the knowledge of the financial benefits of income protection insurance that is preventing people taking it up? Either way, for a more secure financial future, it is better not to leave anything to chance.
Unless you have access to a pot of savings which could see you through a period when you are unable to work, it is advisable to make a contingency plan and to investigate some of the products on the market which are designed for this purpose. Understanding what you are buying and if it is right and affordable for you is essential and it is generally advisable to talk to an expert who can help you find the right level of cover for you.
Income protection cover will protect your monthly income if you were unable to work due to an accident or illness. This is different to life insurance which pays a lump sum on the event of your death and protects the loved ones you leave behind. It is also different to critical illness insurance which covers you if you are diagnosed with a serious illness from a specific list.
Income protection is there to protect you and your loved ones while you are very much alive and will help avoid extreme financial hardship.
Income protection generally doesn’t cover redundancy as that aspect was withdrawn by many providers during the pandemic, but if you have a policy already it is worth checking the level of cover you have before you make any changes.
The cost of income protection will vary and it will consider things like your health, age, lifestyle, hobbies, job etc. If you are a smoker or if you have a certain occupation or dangerous hobby then it is likely you will pay more for your monthly premium.
You can also reduce monthly premiums by having a longer deferment period. This is the period before any income protection is paid out, which could be as little as one day up to a few months. It is important to work out if you have enough savings to cover this gap or if your salary, sick pay or notice period covers you.
Monthly premiums can also be reduced by just focusing on the essential bills such as your mortgage and reducing discretionary spending such as entertainment or holidays.
You may want to choose income protection cover to take you up to your retirement age however it is worth considering that if you have paid off your mortgage and if you have children who have left home and are no longer dependent on you then you may not need the same level of cover.
Income protection policies also have different levels of coverage:
Once you do need to make a claim and assuming it is successful, some policies also offer a useful range of rehabilitation services designed to help you recover and return to work more quickly. At a time when many public health services are stretched, you may consider this to be a useful benefit.
There is clearly a lot to think about when planning for a secure financial future for you and your loved ones.
If you would like any advice about your finances and financial planning, please get in touch today.
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