For a lot of people their Income should be the first thing that they look to protect when it comes to protection products. The reasons they don’t are usually one or more of:
- Its complicated – Basic Life cover is fairly straight forward. Income protection needs to be set up correctly to avoid disappointments when it comes to making claims. Our advisers are here to help you with the nuances of Income protection and design the best solution for your situation. Give us a call here.
- Employer help – Many think that their employers will help them out in the long term if they are ill. Check your own situation. If you’re Lucky it may be that your employer will help. However I have heard horror stories where employers do not. This means that you may need to come to terms with finding an Income stream as well as coping with being Ill.
- Government help – So your employer is less than helpful but surely the government will step in? Well if you are eligible then you are entitled to £116.75 per week for 28 weeks. That wont even cover most peoples mortgage so its back to the drawing board if you are relying on this.
- Lack of trust – The trust in this type of product was severely damaged after the PPI (Payment Protection Insurance) claim debacle. Its important to know Income protection is an entirely separate product. PPI was unregulated, however Income protection is a regulated Insurance product. You must speak to an adviser to apply for Income protection and its actually quite a lot cheaper than PPI ever was.
- Expense – Income protection has a reputation for being “expensive”. This is a legacy mindset. Now, with the advent of smaller claim periods on plans (see below) most situations and budgets can be catered for today.
Your Income underpins everything
Lets say you decide to just take out Life cover for the mortgage. You’re much more likely to be off work sick than die during the term of the mortgage. If you lost the ability to earn money through work then not only could you not pay for your mortgage and essential bills but you probably wouldn’t be able to afford the Life cover. In this situation taking the Life cover by itself is a false economy. Protecting your Income so that you can at least pay for your essential bills is the minimum you should be worried about. Speaking with a professional adviser could result in saving your mortgage, family and or business in the event of you suffering an illness. Arrange a call here.
How it works
Basically it can provide you with or, if you have employer sick pay, it can extend your sick pay arrangements. When you speak with an adviser they will take into account things like:
- Existing sick pay arrangements
- Any savings you may have
- Help from Friends/family
- Any passive income you may receive like pensions/rental income
Your adviser will create a solution taking into account you monthly outgoings. Income protection is really flexible which means policies can be tailored to individuals needs. Key factors of how income Protection works are:
- Sum assured – How much of a monthly benefit you and/or your family would need if you couldn’t work due to illness
- Term – How long you would need this for, usually until your expected retirement age but not necessarily
- Deferred period – This is how long you would need to be off work ill before the plan kicks in. If you have no sick pay arrangements already then a 1 month deferred period is popular. However if your employer gives you sick pay for 3 months then you can arrange the plan to start once this period ends.
- Claim period – Full income protection will pay you all the way through until retirement if you could never go back to work. However, whilst comprehensive, this can come at a cost so there are options of 5 year, 2 year and 1 year claim periods too for clients on tighter budgets.
- Fixed/Reviewable/Age related premiums – Like mortgages you can Fix your premiums so that they will never increase as you get older. Some plans however start off lower and increase with age. This can be really cost effective for clients who are in high risk jobs when they are younger but have the intention to move to lower risk jobs as they get older. Reviewable premiums also can save money early on but potentially could increase over time.
- Inflation-linking – As with most plans these policies can be index-linked so that they match the rise in cost of goods and services.
Things to be aware of
- Income protection is insurance and here to protect us against the unexpected. Therefore if you have had a history of ligament damage in your knee for example then you cant take an Income protect plan out once this has been diagnosed. Historical ailments will be excluded from the plan, much in the same way as Private health care works. However there are literally 1000’s of illness’s that could prevent you from working so an exclusion of just one or two of these things shouldn’t stop you from protecting against the other dangers.
- Don’t get greedy. I have known clients who try and apply for as much Income protection as they can (usually between 55%-70% of their Gross salary). Often the price can put these clients off so they decide to take nothing. This is like being really hungry and wanting a T-bone steak in a posh restaurant. The steak costs £50 which you cant afford so would you walk out of the restaurant without eating anything?! Of course most people would order the pizza for £15 and satisfy their hunger. Its the same with Income protection. Cover what is needed and if the value is good then you can think about increasing the amount that you are insured for.