Mind the (Income Protection) Gap

Could you live on £96.35 per week?

Who pays your mortgage if you can’t work?

How many months could you live off your savings?

The global pandemic has forced us into regular conversations around death and illness.

The pandemic has also highlighted the crucial need for financial safety. This is where insurance policies can help.

Life insurance is usually a no-brainer for adults with financial dependents – see our recent blog here on life insurance.

But Income Protection has been left behind. A recent Which? survey found over 41% of UK adults hold some form of life insurance, with just 9% holding Income Protection

So, what is it? Why should you consider Income Protection? What other factors are there to consider?

What is Income Protection?

Income protection is an insurance policy that pays a monthly benefit if you’re unable to work because of injury or illness.

The most common claims are for accidents, cancer and mental health issues. Mental health claims under Income Protection rose from 10% to 12% in 2020 (ABI)

Why should you consider it?

  1. You’re more likely to claim on Income Protection than life insurance.
  2. Your employer may provide some short-term cover, for example full pay for 6 months but then what? Your employer may offer much less. Such as statutory sick pay (£96.35 per week).
  3. Given the low level of state benefits available, most people of working age should consider Income Protection.
  4. If you’re self-employed, your income might stop if you stop working. Income Protection becomes even most crucial for the 4.2 million people who are self-employed in the UK.

How much can I cover?

This will depend on the insurer, but normally you can cover a percentage of your salary between 55-65%. If a claim is made, the payments are tax-free and paid monthly until the policy ends, you return to work or you die.

So what’s stopping people?

  • Perhaps a lack of awareness that Income Protection exists. A lot of people haven’t heard of Income Protection and often life insurance takes centre stage.
  • Perhaps people view an illness or injury as short-term. But you don’t suddenly recover from a mental illness, or cancer after a few weeks.
  • Price? – it is more expensive than life insurance. It is far more likely to happen.

Whatever the reason, there is a gaping hole in many people’s financial plan that can be easily filled.

Other considerations:

Group Income Protection from employers – your employer may off a group Income Protection plan, or GIP. Speak to your employer and feel free to contact our friends over at Engage Health Group who offer group insurance policies for businesses.

Health and lifestyle – This will affect the cover you can obtain. If you’ve had a serious illness, on medication or if you’re base jumping every Wednesday there is a good chance your premiums will be higher, have exclusions, or be declined. Have a conversation first with a professional adviser – we can often find you some form of cover.

Indexation – Consider increasing your cover and monthly premium each year with inflation. This keeps the level of cover relevant.

Deferred period – This is the period you’ll need to wait before making a claim. Deferred periods are normally available from 4 weeks to 52 weeks with some exceptions. If you receive sick pay from your employer, you can tie in the deferred period with this.

Occupation – Deep Sea diver? Lion tamer? Expect to pay a little more than a call handler at an insurance company.

Ready to talk about Income Protection? We are independent and our advice is free, as we’re paid by the insurer once your policy starts. This means you’ll be receiving the best quotes on the market.

Call us today for a no obligation discussion – 01273 076587 or email [email protected]

This blog is for information purposes only and should not be relied upon for advice. Always seek regulated advice before proceeding.

About the author
Picture of Oliver McDonald
Oliver McDonald
Oliver is the managing director and independent financial adviser at Engage Wealth Management.
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