Do I need to protect my income?
Recent research by Legal & General revealed that the average UK employee would run out of money after 32 days if they lost their income – a sobering statistic, by anyone’s standards.
Despite this, many of us don’t consider the financial impact of being unable to work due to accident or illness. The majority of us don't discuss this – even with family – and push the scenario to the back of our minds.
The sad fact is that none of us knows what lies around the corner.
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Please be aware that by clicking on to the above links you are leaving Financial Solutions (Home & Business) Ltd website. Please note that Financial Solutions (Home & Business) Ltd nor HL Partnership Limited are responsible for the accuracy of the information contained within the linked site(s) accessible from this page.
What is Income Protection Insurance?
An income protection policy will provide you with a monthly, tax-free income if you're unable to work on medical grounds through an event such as an accident, bodily injury or illness.
Alarmingly, 26% of UK employees said that their current savings would only last them up to one week if they were to lose their income (Legal & General). Income protection insurance can offer a vital safety net if you don't have sufficient savings or employer sick pay to enable you to live comfortably.
How does Income Protection Insurance work?
If you can no longer work due to illness or injury, income protection insurance will pay you a monthly amount to cover a proportion of your income.
Whereas critical illness insurance only covers individuals for a specific set of predetermined conditions, such as cancer, income protection insurance covers almost every illness or injury that prevents you from working. Income protection payments are calculated as a percentage of your salary. Payments begin after an agreed deferred period has lapsed (usually one to 12 months).
When you take out income protection cover, there are a number of important areas to consider.
These include:
Level of cover: You can protect 50-70% of your gross (pre-tax) earnings, the more you want to insure the higher your premium will be.
Deferral period: This refers to how long you're off work before your payments start. You might want this to be almost immediate or you may wish to defer payments up to a year or more if your employer offers an adequate sick pay package.
Policy cease age: This is normally set to match your expected retirement age. Some policies can run beyond this, but the premiums for doing so are likely to be costly.
Payout period: This refers to the length of time you’ll receive your insurance benefits in the event of a claim.
How much does Income Protection Insurance cost?
There isn’t a straightforward answer to this, as it depends on your specific circumstances. The higher your “risk”, the greater your monthly premium. When determining risk, insurers look at: your age, your job, whether you smoke, your policy term, your deferral period, your level of cover and your payout period.
However, income protection insurance is an affordable option for the vast majority of people. There are many flexible low-cost payment plans available from a range of well-known providers.
What’s the most suitable Income Protection Insurance for me?
When considering income protection insurance, there are three main premium types to choose from.
Guaranteed premiums
These may be more expensive in the beginning, but they can work out cheaper over a long period as the premiums are fixed. This can be a good option for people who take out income protection insurance when they are relatively young and healthy.
Reviewable premiums
These generally work out more expensive if you retain your policy over a long period. They're often cheaper to start with, but the insurer can increase your premium in accordance with their number of claims or economic performance.
Age-banded premiums
These premiums will increase over time in line with your age and increased risk of claiming. They can only rise by a set percentage each year, unlike reviewable premiums.
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If you want impartial advice about how income insurance protection could help you, contact us to learn more.