Charly Higman, Director of Mortgages & Protection at TFA busts this widely held myth
1 in 3* adults in the UK see no value or need for income protection. The misconception of "It won't happen to me" prevails. But being unable to work can quickly turn our world upside down, as we’ve seen for thousands of people during the coronavirus (COVID-19) pandemic crisis. No one likes to think that something bad will happen to them, but if you couldn’t work due to a serious illness, how would you manage financially?
Whilst we hope that it won’t happen to us, it is important to recognise that none of us are immune to the risks of illness and accidents. The bills won’t stop arriving or the mortgage payments from being deducted from your bank account. In fact 1 in 5*of us would not be financially secure if our households main earner was unable to work.
But how do we understand what our risk of being unable to work is? The first step is to use our risk reality calculator. It’s very easy to use. You’ll just be asked a few simple questions and in return we’ll provide you a personalised report explaining your risk level.
Once you’ve understood your risk level you need to ask yourself if you could survive on your savings or sick pay from work? Whilst some of us receive generous sickness benefits through our workplace others have to rely on the state, which is likely to prove hard. Either way, you may need some other way to keep paying the bills, and one option could be income protection insurance.
What is income protection?
Income protection insurance is a long-term insurance policy that usually provides a tax-free monthly payment if you can’t work because you’re ill or injured, and typically pays out until you can start working again, or until you retire, die or reach the end of the policy term – whichever is sooner.
Simply put it aims to put you back to the position you were in before you were unable to work. It does not allow you to make a profit out of your misfortune. So the maximum amount of income you can replace is broadly the after-tax earnings you have lost, This is typically translated into a percentage of your salary before-tax, but the actual amount will depend on the company that provides your cover.
Do you know how long could you last if you were unable to work?
The latest Deadline to Breadline* report from L&G shows the average household is just a shocking 24 days from the breadline, in the South West this is just 14 and drops to only 10 days in the South East. The this contrasts with the perception that people think they could survive for 90 days or even 120 days if they cut back and only spent on essentials. The reality is that even with cutting back the average household would only be able to delay hitting the breadline by 5 days.
If you are self-employed, then no work is also likely to mean no income. However, depending on what you do, you may have income coming in from earlier work, even if you are ill for several months. Interestingly the Deadline to Breadline report shows on average those who are self-employed can survive for double the length of time at 45 days.
“Income protection insurance is too expensive”
Another misconception is that the cost of income protection is much higher than it actually is which often puts people off exploring it in the first place. As with everything financial there are a number of factors that can influence the cost of your cover such as your, occupation, age, state of health and whether or not you smoke.
Our focus is to help you understand your risks of being unable to work, identifying how financially resilient you are and ensuring that you have the right protection in place. Our aim to educate and challenge those widely held misconceptions, busting those myths to ensure our clients don’t end up on the breadline. We are ‘our’ biggest asset and it’s important that we remember that.
Our independent advisers are on hand to review your personal situation and recommend the type of income protection is that is best suited to your needs. Our first meeting is always at our cost. Our advisers will take time to understand your needs, explain the benefits of being independent, whole of market advisers and the financial advice process. Please contact us on the details below.
*Source: L&G Deadline to Breadline Report 2020
If you stop paying premiums your cover will cease.
Protection policies are subject to underwriting. The provider may exclude certain circumstances or increase your premium as a result of this process.
You may find that the cover provided is less than you need if it is not reviewed regularly.
This blog is for your general information and use only and is not intended to address your particular requirements or constitute a full and authoritative statement of the law. It should not be relied upon in it’s entirety and shall not be deemed to be, or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.