Income Protection – In brief: A monthly income if you can’t work because of an accident or long term illness.
Most people know and understand the concept of life insurance and even critical illness cover, but many people underestimate the need for Income Protection. It can fill a gap between a life event that isn't a critical illness and hasn't meant death, so a "normal" insurance policy may not cover you.
As important as life and critical illness cover is, there is a far higher probability of making a claim as a result of sickness or injury than premature death. These figures are from 2018:
1,573,675* life assurance policies were sold with a pre-set term, but in this period for the same type of policy there were 35,470 death claims paid – 2.3%
179,605 Income Protection policies were sold, with 25,843 claims – 14%**
How it works (when you can’t)!
Income Protection is an insurance policy which will help to replace some of your normal monthly income if you were unable to work due to either an accident or long-term illness. Try to think of it as your own personal furlough scheme. If you were unable to work, you could cover up to 65% of your earned income (some providers also have a maximum threshold depending on income level). This should hopefully cover the bills whilst you concentrate on getting better.
We will work out with you the level of cover you need, up to a maximum of 65% of your earned income. We also look at how long you are able to wait before the policy kicks in and starts to pay out, this is called a deferred period. This deferred period can range depending on your circumstances and any sick pay you may already be entitled to from your current employer.
Income Protection is very important, especially for first time buyers or new home purchases where you may use up most if not all of your current savings to achieve the purchase. What would happen if you were then unable to work? You could end up losing the home you have worked so long and hard to get in the first place.
Sick pay for the self-employed!
If you are self-employed, on the whole, you will pay less National Insurance contributions than if your same income was earned on an employed basis. You could utilise this saving and take out an Income Protection policy to provide you with your own personal sick pay. Get in touch with us to work out how much you save per annum in National Insurance when compared to an employee and let’s see what additional cover this could provide.
Some Income Protection policies can also have an element of life cover built in, depending on the type of cover taken or even terminal illness cover.
Did you know? If you were too ill to work and had to look to state benefits to assist with your monthly costs and bills, the current (at the time of writing) Employment Support Allowance (ESA) application form is 64 pages long and made up of 28 parts!
Get in touch to discuss your Income Protection requirements further.
Source - *Swiss Re Term & Health Watch 2020, **ABI Claims Statistics 2020
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