Think you don’t need Income Protection, think again…
Have you ever thought how you would pay the bills and your mortgage payments, if you were unable to work due to an accident or serious illness?
While you may receive statutory pay, of £88.45 per week from your employer, if you are unable to work due to sickness or injury your employer is only legally obliged to do so for 28 weeks. After that you will be entitled to receive Employment and Support Allowance (ESA) from the state. ESA is available to people aged 25 or over and can pay out up to £73.10 per week.
***Did you know? A study by Unum and Personnel Today found that only 12% of employers will support their staff for more than 12 months if they’re off sick from work.***
If you think that statutory pay or ESA will cover the cost of your mortgage, bills and additional living costs then you probably won’t need to consider Income Protection.
However for most of us £88.45 or £73.10 won’t come close to covering our living expenses, this is why it is essential to have the right level of protection in place. With over 1 million people per year finding themselves unable to work due to a serious illness or injury, it really is worth considering Income Protection. Here we answer the most common Income Protection questions that our clients have asked us...
What is Income Protection?
An Income Protection policy will provide you with a replacement salary if you find yourself unable to work due to serious illness or injury. While this policy won’t pay you your full salary it does pay up to 60%, depending on the terms chosen when taking out the policy. Income Protection policies will usually pay your salary until you reach retirement age or you return to work.
You are able to claim on your Income Protection policy as many times as you need to throughout the term of the policy.
It is worth noting that when you take out an Income Protection policy you will select when you would like payments to start, with most people choosing for this to begin once their sick pay has ended. Monthly payments are generally lower the longer you wait to start receiving the pay outs from your plan.
Do I need Income Protection?
With all insurance policies you take out, you take them out with the hope that you never need to use them. Instead you are ensuring that if the worst happens you have the right level or protection in place, which will provide you with peace of mind.
While being diagnosed with a serious illness or being involved in an accident and being unable to work is traumatic enough in itself, think how much worse this would be if you were unable to pay your bills and meet your mortgage payments; you could find yourself losing your home. However Income Protection will remove this stress and allow you to focus on looking after yourself.
Why might I not need Income Protection?
Before taking out Income Protection it is worth checking a few things:
- Check your employee benefits package – your employer may pay you sick pay for 12 months or more.
- Assess your outgoings - if you are mortgage free would you be able to pay your bills on state benefits alone?
- Check your pension & savings – if you have a large pension or savings pot and could afford to support yourself you may not think it’s necessary to pay a monthly premium.
- Would your family be in the position to support you – it may be that your partner earns enough to be able to support you and pay the bills should you be unable to work. Though you should consider what would happen in the unlikely scenario that both you and your partner were unable to work.
Are Income Protection policies expensive?
The price that you pay for your Income Protection policy will depend on various factors, mainly the policy you choose and your circumstances. As previously mentioned deciding to wait before claiming on your policy can reduce the overall cost. Other factors which will impact on the price of your policy include:
- The percentage of your income that you would like to cover
- Your age
- Your health, current health and your family medical history
- Your height and weight
- If you are a smoker
- Your job
Why should I consider Income Protection instead of Critical Illness Cover?
With Critical Illness cover you are paid a lump sum if you are diagnosed with a serious illness. However you will only receive this lump sum if you are diagnosed with an illness that is on a list set at the time of taking out your policy. So if, for example, you are diagnosed with a cancer that is not on that list you will not receive the lump sum payment, even if your illness prevents you from being able to work.
Another aspect of Income Protection policies that many people prefer to Critical Illness policies is that they will receive regular payments rather than a large sum of money. It can be daunting to receive a large sum of money and know how to spend it accordingly; ensuring that it lasts as long as you need. The monthly payments you receive via an Income Protection policy means that you should be able to always meet your monthly outgoings.
For other types of life assurance policies you may find it useful to read our beginners guide to protection here.
Why use KDW?
If you are considering taking out an Income Protection policy you should speak to an independent financial adviser, as they will be able to search the whole of market to source a policy that is right for you and your circumstances.
At KDW we have been providing our clients with advice on life assurance policies, including Income Protection, since 1978. Our advisers can discuss the different policies available and recommend a policy which suits you and will undertake regular reviews of your policies to ensure they still meet your changing circumstances.
As we are not tied to any providers we will not recommend a policy unless we truly believe that it is right for you.
For a free, no obligation, consultation, please contact us:
T: 01727 85 22 99
E: mail@kdw.co.uk