If you were suddenly unable to earn a living due to long term illness or accident, for how long would you be able to cover your monthly bills? For most of us it is as little as 52 days! Even with government support (which on average provides just £5,200 per year) most of us would struggle to meet our outgoings.
And with one in five of us likely to go on long term sick leave during our working lives, it means that this is a very real threat to your lifestyle.
That is why protection specialists Drewberry Insurance have launched a campaign to raise awareness of income protection insurance. Their aim is to help people understand the very real risks they face of losing their income due to illness or injury, and what measures they can put in place to protect themselves and their families, financially.
Spokesman Tom Conner from the company says: “People routinely insure their cars and homes but the one thing they don’t always think about covering is the most important – which is their ability to earn an income.
“To suddenly lose your income due to long term illness or injury and only have government provided support to rely on, is devastating. Even if you have a substantial amount of savings, they won’t last forever.
“That is why we are actively raising awareness of income protection – it is such an important product that people overlook.”
Here we take a brief look at income protection and what it does.
What is income protection?
Income cover is designed to replace up to a percentage of your earnings in case you become unable to continue with your occupation due to illness or injury. In some cases, some policies will allow you to add on involuntary redundancy cover, though this is uncommon.
The money is tax-free and can be used for whatever purpose you wish, for example rent or mortgage, food bills etc.
How does income cover work?
In the event that you become too ill to work, the policy will typically pay out around 70% of your gross earnings until such time that you return to work or at the end of the policy life – whatever event happens first.
Do note that different policies may offer different percentage payouts
How long will the policy pay out for if I become too ill to work?
There are a number of options with this type of cover. Generally, it is a long-term form of protection that allows you the option to receive cash benefits right up until retirement age.
Shorter payout periods, however, of two to five years are also available. As with life insurance, premiums can often be fixed for the term of the policy, so you know exactly how much you’ll be paying throughout the life of the policy.
Won’t my employer pay for my long term sick leave?
If you are unfamiliar with what your employer’s stance is on long term sick leave pay, you should find out straight away. Generally, not many employers will pay over and above the Statutory Sick Pay requirements (currently £86.70 a week for up to 28 weeks). Not only that, even with a company sick pay scheme, it will only run for a defined period of time – say a year at the most – leaving you financially vulnerable after that.
Mr. Conner adds: “Only 7% of working adults have income protection cover in place, yet anyone can lose their income, regardless of occupation, age or gender.
“With the average claim being paid for 7 years, now may be the time to think about how you’d cope for that long without an income.”
Editors note: This article was brought to The Money Principle in collaboration with Drewberry Insurance and further data sources are listed on their website.