Find out why taking out Income Protection cover can help to give you financial peace of mind if you can’t work due to illness or injury
I think we’ve all become a bit more aware of our financial situation recently, don’t you?
You may have been making or updating wills, checking your pension plans, and making sure that you’ve got the right insurance cover. And knowing that your finances are in order can really help to make you feel a bit more secure.
If this sounds like you, one area you might not have considered is income protection. It’s a financial security net that can give you some extra peace of mind during uncertain times.
What is Income Protection?
If you were unable to work due to serious illness or injury, what impact would it have your household finances?
According to the Association of British Insurers, a million UK workers each year find themselves in that position. And if you’re the main earner in your family, the impact on your household finances could be absolutely devastating.
Income protection is insurance that pays out if serious illness or injury prevents you from being able to work. It usually covers around 50-70% of your salary until you go back to work, retire at state pension age or pass away during the period of the claim.
It doesn’t matter whether or not you have dependents to worry about. If illness or injury keep you off work, it will help to know that your bills are covered by income protection.
Why do I need Income Protection cover?
Lots of people take out life insurance so that if they die, their loved ones will be left financially secure. But you’re more likely to take time off work through illness or injury, than you are to die before retirement. So it’s a good idea to take out cover for this situation as well.
You might think that your employer will pay you if you are off work ill, but not everyone gets full sick pay. You might have overestimated how much you are entitled to and how long your employer will pay it for.
And the Government can change state benefits at any time, whereas an Income Protection policy is a contract that provides cover you can rely on. So if you do get ill or injured, you won’t have the extra worry about how you are going to pay your bills.
Can I get Income Protection if I’m self-employed?
Income protection is available to self-employed people, in fact it’s probably even more important if you’re self employed.
When you run your own business, you don’t have an employer’s sick pay to fall back on. So you will have to rely on savings or the basic level of Government financial support that is on offer.
An Income Protection policy offers a higher level of financial security and much greater peace of mind.
When you’re taking out an Income Protection policy, your share of your business’ pre-tax profits is used to calculate your monthly income. And any loans you’ve taken out to build up your business will need to be covered along with your mortgage.
Cover is available for self-employed, contractors, part-time workers and more. There are plenty of different options available, even if you have difficulty providing proof of your income.
How much does Income Protection cost?
As you might expect, the cost of Income Protection varies depending on a number of factors including your age, job, current health and medical history.
But the beauty of Income Protection is that you can tailor the policy to suit your circumstances.
You can choose to cover as much of your income as possible, or just enough to cover your household bills. You’ll agree a range of illnesses and injuries that the policy will cover, which usually includes things like heart disease, back issues and cancer. And you will also need to decide how long each claim should pay out for, and how long to keep the plan in place.
The ‘deferral period’ is the time between when you make a claim and when your policy starts to pay out. The longer you make this deferral period, the cheaper your premiums will be. So before you buy Income Protection, it’s a good idea to check what Statutory Sick Pay you will be entitled to, and how long you would be able to cover your expenses with that and any savings you have.
That way you can arrange for your policy to start paying at the time that you’ll need it.
What to do next?
If you would like the peace of mind of knowing that your bills are covered by Income Protection, your next step should be to seek financial advice.
Before you apply, make sure that you check what sick pay your employer will offer, how much of your income you want to cover and what deferral period you want before your policy starts to pay out.
This post is for information purposes only and does not constitute financial advice.