Do I Need Income Protection?
23 Dec 2019
Sometimes, insurance providers will give you the hard sell and tell you that you desperately need any and all protection products that they sell - mortgage protection, life insurance, critical illness cover, family income benefit, with income protection to top it all off.
The truth is unless you want to be next-level cautious, you don’t really need all of these, but you should have some kind of protection in place for if something happens to you and either leaves you unable to work or leaves your family without you.
What is income protection?
Finding yourself unable to work because of illness or injury can be financially devastating, especially if you’re the main breadwinner in your household. According to the ABI, (Association of British Insurers) a whopping one million workers a year find themselves unable to work due to a serious injury or illness.
Not to scare you senseless, but that’s a huge amount of the workforce, and could very easily be you. Income protection is there to pay out in case something happens to you and you’re unable to bring home the bacon. It’ll usually provide between 50% and 70% of your salary until 1 of 3 things happen:
1- You recover and go back to work, fit as a fiddle.
2- You reach state pension age and retire.
3- You pass away during the period of the claim.
When it comes to cost, income protection - like most other life protection products - depends on a few variables, like your lifestyle, age, job, hobbies, your current health, your medical history, and the level of coverage you’d like. You’ll also need to decide on a “deferral period”, which refers to how long it’ll take between you making the claim and beginning to receive your pay out.
The longer your deferral period is, the cheaper your premiums will be. Before buying your policy, you should figure out how much Statutory Sick Pay (SSP) you’re eligible for from your current job and work out how long you could get by on just that pay and/or your savings. Then you can arrange your insurance pay out to start at the point that you think you’d need it.
Why is income protection so essential?
Many people choose income protection over other types of protection policy, or they choose to buy it alongside life insurance or mortgage protection. The thing is, whilst you definitely don’t 100% need every single type of cover available, it’s important to remember that different types of coverage are designed for different situations. You need to weigh up which situations you think would be the most detrimental to you and your loved ones and find a policy that protects against that.
Many people choose income protection for the following reasons:
Income Protection pays out in monthly installments, rather than in one lump sum, which means you’re less likely to mismanage the money and run out of it whilst you’re still sick.
You’re more likely to be off work sick or with an injury than you are to die before retirement, which means that income protection alone may be enough for you. Of course if you want that extra peace of mind, you could still buy life insurance along with it.
You’re self employed and don’t have SSP to fall back on. Whilst there are ways to receive support from the government like an Employment and Support Allowance, many people don’t qualify, and benefits change over time, whereas a policy is a contract that will protect you as arranged for the whole of the agreed time period.
When don’t I need income protection?
There are very few people who wouldn’t benefit from income protection. If you think you’d be okay living on your SSP or savings indefinitely, or if you could fall back on government benefits or your friends and family, then it might not be a priority for you.
Unlike other protection products which are targeted more at being a way to help your loved ones cope, income protection is as much about protecting the life you love as it is about protecting them. If illness or injury means you can’t pay the bills then you’ll be in a sticky spot whether you have other people depending on your income or not.
If you need a little guidance finding the right life protection products and policies, the team here at LifeSearch are only a phone call away. Submit an enquiry or give us a call on 0800 316 7253.
Average cost of income protection
30 Jul 2020
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Joint Income Protection Insurance
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Is a joint income protection policy possible?