Please note that the value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
Income protection is an insurance designed to pay you a monthly income if you are unable to work through an accident or ill health.
Many people haven’t considered what would happen if they had an accident or are too ill to work. After any benefits an employer may provide, people would qualify for universal credit which starts at below £300 a month and can be less if you have savings. For most people without other resources or assistance from family, this would be challenging, to say the least! Despite this, only a very small proportion of the workforce have any cover in place, and those that do often have it provided by their employer, rather than making an active choice to get it themselves.
On the face of it this seems bizarre, someone earning the average salary in the UK is likely to earn over £1.5m during their working life and has no insurance in place in case the ability to earn this is completely taken away from them but often has insurance covering a phone or other household appliance.
A lot more people have life insurance that pays out a lump sum if you die but nothing in case, they are ill, and you are far more likely to be ill than to die during your working life. Many people have plans in place for their future, saving into pensions and ISAs but nothing in place to stop these plans from falling apart if the income stops.
Why do so few people have Income Protection Insurance in place?
- A lot of people simply aren’t aware of the need for the cover and what would happen to them if they were ill. Unlike many types of insurance that insurance companies are keen to promote and sell with a few clicks, income protection is a little more complicated and in depth, so people often need to seek out the cover themselves which if you didn’t even know it was available or need, it is unlikely to happen.
- Often people assume that they must have cover for this type of eventuality when they don’t. They may have some life cover, mortgage cover, or a critical illness policy which are all fine for those specific risks but do not cover the long-term loss of your income.
- There can be a perception that the cover is expensive, but there are many options and ways to set up policies to meet any budget and if you are unfortunate enough to need the policy to pay out the pain of a small monthly payment will have been more than worthwhile.
- Income protection cover is more complicated than some other types of insurance, there are many different options, amounts, timescales, and features to be considered and tailored to your individual circumstances, and while this means policies can meet people’s exact requirements but the vast array of options can put people off.
Why is having income protection important?
Protecting your income – Income protection ensures that you continue to receive a portion of your income, usually a percentage of your pre-disability earnings, during your time off work.
Providing you with financial security – Having a stable income stream through income protection can help you maintain your family’s financial stability. It can help to cover your essential living expenses, such as rent or mortgage payments, utility bills, food, and other necessities, even when you’re unable to work.
Medical emergencies – In the event of a severe injury or illness, you might face significant medical expenses. Income protection can provide financial support during your recovery, enabling you to cover medical bills and treatments.
No existing benefits at work – Not all employers offer adequate sick leave benefits if you are unable to work or their policies might only cover a limited period. Income protection bridges the gap between the time your sick leave ends and your potential return to work so your family is not financially impacted and remains protected.
If you are self-employed or a small business owner – If you are self-employed or run a small business, you may not have access to benefits like sick leave or disability insurance through an employer. Income protection is especially crucial in such situations to protect your income and ensure your business continues during your absence.
Long term disabilities – Income protection cover can be vital if you are unable to work through a long-term disability and that disability affects your ability to earn an income for an extended period. Income protection plans can cover long-term disabilities that prevent you from working for an extended period or even permanently.
Peace of mind – Knowing that you have a safety net in place can provide you with peace of mind. You don’t have to worry as much about the financial implications or an unexpected event that could disrupt your ability to earn an income and your family’s ability to cope financially.
Summary
We can all get ill and although it’s not nice everyone should consider what might happen to themselves and their families in these circumstances.
Every family’s financial circumstance is unique and there are numerous providers in the market place that can help to provide income protection cover for you and your family. There are also a number of options you can include within your cover to tailor it to your individual protection needs.
Income protection insurance can be a vital part of people’s financial plans and take away the worry of what might happen in already very difficult circumstances.
How can we help?
At Nelsons, we understand that for the reasons set out above the awareness and understanding of this type of cover can be tricky, so if you require any assistance in this area, please get in touch with Sam Cawley Investment Director and Chartered Financial Planner in our expert Investment Management team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online form.
Contact us