What would happen if you were ill for several weeks and you couldn’t work?
How long could you support your family by continuing to pay your mortgage, rent or your bills?
The average household saves around £2,000 per year, meaning that the average household has just one month’s worth of savings. Therefore, families could quickly fall into financial difficulty should there be an unexpected drop in income.
Working with homeowners and families in and around Hitchin, our protection specialist Aaron has seen just how important it has been for individuals to protect their income.
What is income protection?
Over the last 18 months, we have all seen how much the Governments Furlough scheme has helped thousands of families across the UK. Keeping them afloat with 80% pay when they aren’t able to work.
Income protection is essentially your own personal furlough scheme, paying out a tax-free monthly income at around 60% of gross income when you cannot work due to sickness, an accident or disability. This means that you will get on average around 80% of your brought home pay upon a successful claim.
Why should I protect my income?
Most of us have some form of protection to pay off the mortgage if we become critically ill or die. Yet, none of us protects our mortgage if we become sick and can’t work for several weeks. Just because we can’t work, it doesn’t mean that our bills will stop. We all have insurance for our car, our mobile phone, the contents of our house. But, without income, we can’t protect any of those things, yet none of us protects them.
A lot of people will be shouting at me now saying ‘BUT I GET STATUTORY SICK PAY! Why would I need this!’ and to that I would exhale in a deflated fashion. Could you and your family survive on £96.35 per Week!
For those of you who get sick pay from your employer, fantastic, you are one of the lucky ones. Not only do you have an employer who takes care of their staff, but also because taking out income protection will be so much cheaper for you. You can defer the pay-out for when this benefit stops from your employer.
Does it actually payout?
Income protection is the least purchased form of protection, yet it is the most claimed on. With providers paying out on average 90% of claims, and the average claim being 7 years. The stats show that you are more likely to claim an income protection policy than on life or critical illness policy. This is mainly because we only die once. Whereas we will all be ill more than once in our lifetime, and the bonus is that you can make more than one claim in the policy term.
What benefits can I expect from my income protection policy?
All providers offer slightly different benefits, but they all have one thing in common. They all want to help you be back at work, living your life as quickly and safely as possible, but only when you are ready.
Great benefits such as £2,200 lump sum fracture cover and £10,000 death benefit protect our families and us from the unexpected and often, most serious incidents. Other benefits such as own occupation and income top-up, where the insurer will top up your income when you go back to work on reduced hours or in a reduced role, will help you gradually get back to your normal life when you are ready, not when your employer or your insurer decides. Another benefit is a waiver of premium; this feature means that you don’t need to pay your monthly premium while claiming, meaning that you are saving even more money whilst you are incapacitated.
Is Income Protection one size fits all?
With benefits such as differing deferred periods and the ability to index your cover, meaning that your cover will keep up with inflation. Income protection policies offer real flexibility to create a bespoke cover that fits your needs, and it’s not an off the shelf, one size fits all product that will you find being sold by an opera-singing meerkat.
Income protection is more than just a policy to protect your income. It is there to protect you and your family from the unforeseen situations that happen every day. We see time and time again families falling into financial difficulty. Not because of a serious illness or death within a family but because a family member cannot work for something as trivial as a bad back. It’s time to shift the tunnel vision mindset of only protecting mortgages and instead focus on protecting families for as many potential situations as possible, not just the most serious.
If you are thinking about protecting your family or want more information about income protection, please get in touch with us today, and I’ll offer a no-obligation consultation at your convenience.
Protection, Wills & Trust Specialist, Fortune Financial, Hitchin, Hertfordshire