As explained in our recent articles, there are various aspects of our lives that we can protect with insurance. One of these is your income, which can be protected via a policy called permanent health cover, or income protection.
Commonly confused with health cover – which is a policy that will cover the cost of medical treatment in a private hospital – income protection is a policy designed to provide financial assistance should you be unable to work for a sustained period of time or suffer a reduction in salary. As the policies are completely different, you could take both out at the same time, or simply rely on the NHS to cover your medical costs and use income protection to cover your earnings.
When calculating the level of cover required, it is important to consider all your monthly outgoings – these will include your mortgage/rent, bills, food costs and travel expenses.
By law you are entitled to 28 weeks of statutory sick pay, after which you will have to rely on state benefits to provide an income if you are still unable to work. Some employers do provide a protection insurance scheme for employees, meaning you may be entitled to more if you are fortunate enough to be enrolled in such a scheme.
An article in The Times revealed that only 3% of people renting have income protection cover, and that millennials are at a greater risk than their parents of needing to take prolonged periods of time off work due to illness and work-related stress. A lack of savings, uncertain employment prospects and spending a high proportion of income on rent and debt are other factors that are putting millennials under increasing financial pressure when things do go wrong.
Furthermore, those who are self-employed are at an even greater risk should their income be lost, as they are not entitled to statutory sick pay or leave from an employer.
Income protection can be taken out over the short or long term. Short term cover will usually pay out over one to two years to cover loss of income during that time. Longer term cover, however, will typically cover you for an illness or disability until you are able to return to work, die or the policy ends.
You can generally take out cover that will protect up to two thirds of your salary. Some policies will also cover your family, meaning that if you had to give up work to care for a sick family member then you could put in a claim.
It is also important to take out a policy specific to your occupation and earnings, as this will ensure that the insurance paid out is enough to cover your living costs, which are likely to be higher if you are in a well-paid job.
Some policies also come with a deferral period, where you will not receive a pay out for the first six months, for example. These can be suitable for those who have enough savings to cover this initial period or can live off their employer’s statutory sick pay. The benefit of a policy including a deferral period is that the cost of cover will reduce compared to those that pay out straight away.
As with many other types if insurance, income protection policies can be cheaper the earlier you take them out. They can also vary in cost depending on your type of employment, your state of health and the sum assured.
If you would like to talk to an adviser about your insurance policies, please contact Finura.
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Financial advice firms who adopt this standard adhere to a set of principles, giving clients confidence that they are dealing with an ethical adviser when receiving financial advice about whether a pension should be transferred.
There are various aspects of our lives that we can protect with insurance. One of these is your income, which can be protected via a policy called permanent health cover, or income protection.