It is a term most of us have heard of, yet the chances are most of us do not have a full understanding of what income protection is and how it may be a benefit to us in our lives.
Regardless of your current age, health, level of financial independence, or homeowner status, we all have some form of regular financial outgoings. Alongside that, most of us have goals and plans for the future that rely on our income and savings.
We all think we are invincible and that nothing will ever come along to halt us in our tracks. It is important to remember that even Superman had his kryptonite, we all face the sad reality of the potential of falling ill or getting injured from time to time. If you are unable to go to work and lose your regular income, would you be able to cover your existing bills? For many of us, the answer is simply “No”.
This begs the question, what is your plan should that instance arise?
How does income protection insurance work?
The purpose of income protection insurance is to provide a regular replacement income if you become unable to work due to an illness or injury. Income protection can pay a percentage of your salary until either you are ready to return to work, reach state pension age, or if you die whilst claiming.
It does not matter whether you are employed or self-employed, income protection insurance provides you with a tax-free payout that covers up to 70% of your gross monthly pay. This regular income can be spent however you need to use it, whether it’s to pay the rent, buy the groceries, or a pair of new slippers to make life feel a little brighter again.
When taking out an income insurance policy, you must be honest about any health or pre-existing health conditions with your insurer. The policy won’t pay out if it’s unearthed that you’ve been untruthful in your application process.
Do I need income protection cover?
Now that you have a much clearer understanding of what income protection is, it’s worth asking yourself whether it’s something you would benefit from.
Financial experts often recommend that you have around three months’ worth of income in savings to help support you should a time arise where you are unable to attend work. Accidents and sickness can creep up in anyone’s life so it’s always important to have something in place should that arise.
The scary reality is that for many of us, having a savings account filled with funds to carry us through difficult times isn’t a reality. Even so, for those of us who are fortunate enough to have a pot of savings, it’s likely that we would feel reluctant and not wish to dip into them to pay for things like the rent and bills.
Having an income protection policy means that you never need to dip into the lump sum you have saved away. It also provides a level of cover that means you could potentially keep saving money each month. Helping you with keeping on track to hit your financial goals.
It’s normal for you and your family to rely on your income to provide the funds needed for regular living costs, purchasing an income protection policy can ensure that your lifestyle would remain unaffected if you were ever unable to work due to ill health.
Surely the government would just support me?
While there is some financial support in place from the government for people who are unable to work, the reality is that the amount is lower than you would expect and the criteria to qualify is stricter than you might have hoped.
Are you aware that the standard allowance for universal credit for a single person over the age of 25 is only £324.84 per month (If assessed on or after 6/10/21)? It is even less for people under 25 and will also be lowered if you have savings, among other factors. For the vast majority of us, it simply wouldn’t be enough to maintain our current lifestyle. Particularly during a time where expenses tend to increase due to needing to pay for prescriptions or buying mobility aids that may make our life a little easier.
How can I buy income protection insurance?
At Marchington White Financial Planning Ltd, we can help you work out exactly how much income protection insurance you need, discuss monthly premiums and which insurer is best suited to you. We are regulated by the financial conduct authority.
Call 07740875159 to speak to one of our insurance specialists, who can guide you through the process and support you in choosing the best cover for you and your family.