Safeguard your future with Income Protection Insurance
Posted on 7th December 2020 at 11:16
Ask yourself, what is your biggest asset?
It is astonishing that so many people prioritise mobile phone insurance, pet insurance, breakdown cover and home insurance etc. instead of the very resource that buys all those possessions – income!
Protecting your main asset – your ability to earn an income - is surely one of the most valuable forms of insurance. Income Protection will help you to maintain your lifestyle and pay those bills, cover your rent or mortgage, at the time financial security is needed most.
The COVID-19 crisis, and our experience of living through it, has surely helped all of us to understand the importance of insuring our income?
Consumers buy more critical illness policies than income protection policies, YET, most disability claims are attributed to musculoskeletal complaints and mental illness; neither is covered by a critical illness policy. Critical illness is therefore often not suitable for protecting clients against being unable to work.
It won't happen to me!
People just do not think they will ever need to claim for sickness or disability.
The Office for National Statistics reported that, in 2018, the total days lost to musculoskeletal problems and to mental health conditions was 27.8 million days and 17.5 million days, respectively.
Every year, over a million people are absent from work for a month or longer because of illness, An estimated 141.4 million working days were lost because of sickness or injury in the UK in 2018, the equivalent to 4.4 days per worker.
Will your employer cover you for long-term sickness or disability?
Most employees have little knowledge of their employer’s sick pay arrangements; the levels and duration of sick pay schemes vary considerably.
Many employers, however, offer a period of full pay but two thirds of them only do so for up to eight weeks. Accordingly, most employees will then have to rely upon Statutory Sick Pay and means-tested Universal Credit.
Statutory Sick Pay – the minimum an employer has to pay you – stands at a weekly rate of £95.85 for up to 28 weeks. Some employers won’t pay you any more than that amount.
There is a clear need for more information and for annual statements of employee benefits – ask your employer this information, using the attached short questionnaire.
Is Income Protection perceived to be too expensive?
Consider a 25 year old male - non-smoker in good health - purchasing an income protection policy with a monthly benefit of £1,500 per month until age 68. Assuming a waiting period of 8 weeks off work before the monthly benefit starts, the IP policy would cost him circa £28 per month.
If, at age 35 years, he suffered a road accident and was unable to work long-term, the policy would potentially pay out for 33 years: a total amount of £594,000. Yet, had he purchased life and critical illness cover, instead, he would not have received a pay-out at all.
Income Protection won’t pay out when I need to claim, will it?
There were 25,843 IP claims in 2018 and the industry paid out £166m of income to all new and existing IP claimants: an IP claim is not a one-off payment and claims can last for years. The average acceptance rate for new claims was almost 90%.
According to the Association of British Insurers (ABI), the average IP policy pay-out is for 214 weeks, more than 4 years; and insurers report the average length of IP claims is as long as 7 years.
A need for confidence in the product
Given that 97% of IP sales are arranged by financial advisers, the latter has the key to ensuring the public becomes more aware of the need for IP, by delivering quality protection advice.
It is therefore vital that advisers are knowledgeable about the IP product and strong advocates for it – Income Protector is trying hard to re-establish Income Protection as the true foundation of financial planning.
For more information on Income Protection, please contact
Nigel Osgood, Independent Mortgage Broker & Insurance Adviser
T: 01628 594433
INCOME PROTECTION INSURANCE
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