Recent events have made many people realise how ill prepared they are if they become unwell or are otherwise unable to work. We explain what protection you can put in place to protect your income, your home and your family…
Learn what income protection can offer you…
For anyone who has lost their job to the COVID-19 crisis, been furloughed on 80 per cent of their salary, or seen clients and projects disappear if they are self-employed, the precariousness of their financial situation may have come as quite a shock.
For many people it has been a wake-up call to look at ways of protecting their income in the future. Many of us have life insurance so that that our families are protected should we die, but what would you do if you became disabled or too ill to work?
It’s a serious question and well worth considering.
Income protection insurance
An income protection policy (sometimes called permanent health insurance) is set up to help you if you are unable to work because of illness or injury.
It will provide you with a regular income – like getting a monthly salary – until you are able to return to work, until you retire or die, whichever is sooner. The amount you receive is decided when you set up the policy.
You also need to work out how long you could manage before having to claim the money. For instance, it could be as soon as one month without working, or three to six months, if you have plenty of savings or your employer has generous long-term sickness cover. Rather like a car insurance excess, this dictates how much your premiums are – it will be lower if you defer the pay-out until you been unable to work for three or more months.
It’s also important to note that you can claim on an income protection policy multiple times.
These policies usually cover most illnesses that are likely to render you unable to work. But it is best to get some advice from an independent financial adviser on the sort of policy that would be right for you.
Is it right for you?
Many self-employed people are best advised to have income protection in place as they are not covered for sickness in the same way that employed people are. However, income protection is not just for self-employed people. If you are ill for a long period, you may start off on full pay, then after a number of weeks drop to half pay or less. If you are unable to work for a long time, you may lose your pay altogether. If you receive Statutory Sick Pay, bear in mind that it only amounts to £95.85 per week, for up to 28 weeks. Few people could pay their mortgage, bills and look after their children on such a small sum.
This is a good time to check just what sick pay you are entitled to from your employer and take this information with you when you talk to your financial adviser.
Can you manage without income protection insurance?
You may discover that your employer will give you a good income if you are off sick for a year or more. Or maybe you have few outgoings and could survive on Statutory Sick Pay or benefits.
If you are close to retirement, maybe you could take your retirement a little early and use your private pension to live on, or perhaps your partner earns enough to cover both of you, and your bills.
Paying the price
The cost of policy premiums is calculated using a number of factors. As we have already mentioned, it will be cheaper if you stipulate that you must be unable to work for at least three months before claiming. Costs are also affected by your age, whether you smoke, how much income you want to receive, your current health and what conditions are covered.
As you can see, there is quite a lot to consider when taking out an income protection plan, so it makes sense to talk to an independent financial adviser to work out whether it is right for you and, if so, what policy will suit you best.
If you would like to discuss income protection insurance, or any changes to your financial situation during the COVID-19 pandemic, we will be happy to help. Please contact us without obligation.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire and Hampshire. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email firstname.lastname@example.org.