Why protecting your income is more important than ever

With Joe Carey, Independent Financial Adviser

After spending a fortnight in ‘self-isolation’ with my wife and new born daughter in our own little bubble (on paternity leave), my first day back at work was Monday 16th March, where I was greeted by the biggest peace-time crisis in living memory.

When we hear COVID-19 we question our own health, and that of our loved ones.  Since the crisis began in China at the turn of the year and it became clear that it was spreading quickly around the world, we saw a significant spike in Protection enquires, and in particular Income Protection.  I therefore thought I would highlight what this means as it is often overlooked by many.

What is Income Protection?

Income protection is a long-term insurance policy designed to help you if you cannot work due to illness or injury.  It ensures you continue to receive a regular income until you retire, or you are able to return to work.  The protection replaces usually between 50% and 70% of your income if you cannot work due to illness or a disability.

The protection covers you (and pays out) until you are well enough to work again, or until you retire, pass away or when the policy term ends; whatever comes first.  This differs significantly from the likes of Accident, Sickness and Unemployment cover (or even the much denounced PPI) which only used to pay out for circa 12/24 months.

Income protection covers most illnesses that leave you unable to work; either short or long term (depending on the type of policy and its definition of incapacity) and you can claim as many times as you need to, while the policy lasts.

Why is Income Protection important?

Most employers will offer sick pay, but it is often only paid for a few weeks.

State benefits are surprisingly low for people who are unable to work due to illness.   Statutory Sick Pay (SSP) is £94.25 per week and the Office of National Statistics (ONS) says the average household spends £529 per week (you do the Maths!).

According to the Association of British Insurers (ABI) one million workers a year in the UK find themselves unable to work due to a serious illness or injury.  If this was you, could you live on Statutory Sick Pay of just £94.25 per week?

Income protection (and therefore peace of mind for you and your family) may cost less than you think, and with the expertise of a Chartered Firm, you know that the advice you are getting is crystal clear.

If this was an area in which you would like to chat further, please do not hesitate to call me, or your Active financial adviser

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