Income protection Updated:
We all know the importance of protecting our assets. You wouldn't dream of not having home or car insurance, and a growing number of people are choosing to protect their travel plans and even their pets – often at the expense of themselves. Given that you put so much emphasis on protecting other aspects of your life, doesn't it make sense to protect the biggest one of all?
Unfortunately, this is something that not everyone considers. According to research from Reliance Mutual, more people had mobile phone cover, travel insurance and home insurance than critical illness cover – 57% had home insurance, 24% had a travel insurance policy and 23% had cover for their mobile phone, while just 17% had a critical illness policy.
The question is, why? Reliance found that the biggest barrier to families protecting themselves is that "life just gets in the way", while many are put off by the perceived complexities involved. Cost is bound to come into it as well, with this kind of cover being seen as a luxury and therefore an unnecessary outgoing, particularly with budgets being so tight. But, it's important to consider the consequences of being out of work before writing it off.
Respondents were asked what would happen if the major breadwinner in the family couldn't work due to illness, and it seems that their finances wouldn't cope for very long. Almost half (43%) of those surveyed said they would only last for four weeks or less without having to make cutbacks, while a further 40% would have to stop paying their rent or mortgage by the time the four-week period was up.
These are worrying figures, suggesting not only that most people don't have the recommended three months' financial buffer stashed away, but also highlighting the importance of having suitable protection in place. Without it, there's a very real possibility that you and your family would become financially stretched should the worst happen, and the state invariably won't be able to provide the necessary support to maintain your current standard of living.
The Employment and Support Allowance, which you could be entitled to were you unable to work due to illness or injury, pays a maximum of £468.65 per month. Would that be that enough? Chances are, probably not, and you wouldn't want an already stressful situation to be made worse by needing to worry about bills and mortgage repayments.
Clive Allison, of Reliance brand There, commented: "So many people don't have protection in place and are failing to insure themselves, yet they wouldn't hesitate to insure their belongings. We understand that this is often because life simply gets in the way, there is so much jargon and many products seem complicated. This is a dangerous combination as paralysis can set in, with people often doing nothing, which is the worst thing.
"[We want to] encourage customers to take that first step and just get something in place – as every little bit makes a difference. Every family needs to know that if a key wage earner is unable to do their job due to injury or illness, that at the very least the essentials will be covered."
If you're starting to think seriously about financial protection, there are several different types of cover you may want to consider – but they're all about having the peace of mind to know that you, and your family, will be financially protected.
Income protection insurance, for example, will pay a regular monthly income, typically a parentage of your usual salary, if you're unable to work due to illness or injury. You can generally choose from a short-term policy (which will only pay out for a set period of time, usually one to five years) or a long-term plan (which will pay out until a fixed age, death, retirement or your return to work).
Critical illness cover is another popular choice, which pays a lump sum – as opposed to a regular in income – if you're diagnosed with a serious illness. Mortgage payment protection insurance is another possibility, which will cover your mortgage repayments if you're unable to work, usually for a period of 12 or 24 months (for this reason, other forms of income protection are normally preferred).
Then there's life insurance, a policy that pays out on death. While it won't benefit you should you be unable to work, it can provide valuable financial input for your family should the worst happen, and again there are various options to consider.
No matter what kind of policy you're considering, it's important to thoroughly discuss the options with a specialist. These can be complex forms of cover and you want to make sure you've got the protection you need at a price to suit, and it needn't cost a fortune to find the right policy.
Hopefully you'd never need to use this kind of policy, but if you were out of work and failed to have it in place, you could find yourself wishing you had. In fact, research from the deVere Group found that not being adequately protected by insurance was a key financial regret for many over-50s, highlighting the importance of planning ahead.
Nigel Green, of deVere, commented: "[A number of] respondents told us that a lack of insurance has held them back financially when things go wrong, which unfortunately, sometimes they do. One of the cornerstones of personal wealth management is protecting primary assets that, typically, include yourself as a source of income for you and your family, your home and your business. Therefore life, critical illness and business cover, amongst other types of insurance, are essential."
Ultimately, you and your family rely on your income to be financially secure – and if that income was switched off, for whatever reason, it could make it difficult to maintain your current standard of living. Protecting yourself as well as your assets is something that should always be considered, because the premiums will be a small price to pay for the peace of mind this kind of cover can provide.
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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