For all of us, not being able to provide for our loved ones is a real concern. Being in a situation where we cannot pay the bills because we have lost our income is not a place we want to be.
So how do you protect against this?
Income protection does exactly what it says; it protects against the loss of your income. This can be in the event of sickness, injury and/or redundancy.
Having a plan in place can be the difference between making a claim and being able to pay your bills, and having to rely totally on family, friends and the state.
With cover in place YOU have control over what happens at a time when the last thing you want on your mind is financial worries.
It’s the one protection policy every working adult should consider. Which? Money, 2013.
If you are working, whether employed or self employed, these plans are available. Indeed cover even be taken by house persons in some circumstances. The level of cover available depends largely on your income; gross income for the employed and net profit for the self employed, with proof of this usually needed if you make a claim.
Typically the plans on offer for individual income protection cover between 50% and 65% of these figures, but this can be up to 70% for some.
The cost of these plans is based on your age at application, so the older you get the more expensive it becomes. However, with guaranteed premiums being available in many cases once you are paying for the plan the premium does not increase: so you have locked in the cost.
As an example, if you are 30 year old non-smoker and in good health, then a guaranteed premium of £35.40 per month would provide you with a monthly benefit of £1,200 after 4 weeks for up to 38 years (the number of years to the current state retirement for a 30 year old) should you be signed off work due to an accident or sickness.
Policies that are taken out online without advice are only fully underwritten at point of claim and this can result in the risk of a claim not being paid out. It is therefore really important to discuss your financial needs with an experienced and regulated adviser. This ensures that the plan(s) recommended will provide the support you require when the worst happens.
Income protection plans that have no investment link have no cash in value at any time and will cease at the end of the term. If you stop paying your premiums your cover may end.
Which option is best for you?
Roxburgh Financial Management was set up to provide specialist help to people unsure how to go about choosing from the many protection products available. We ensure that you are in a fully informed position before any application is completed with you. This gives you the peace of mind of knowing that the recommendations made by our specialists will be tailored to your specific needs and budget.
Six reasons to use us
- We do not charge for our insurance advice, we are paid commission by the product provider
- We will explain the good, the bad, and the ugly
- We will ask the right questions
- We do all the work, right through to completing the application form
- We can access the full range of insurance providers
- We are regulated and authorised by the FCA
Types of Income Protection
Accident & Sickness
Accident and sickness protection may be the most important income protection you can have. If you are unable to work due to an injury or illness it’s there to cover your core monthly expenditures, such as paying the mortgage or rent, household bills, medical bills, credit cards, nursery costs and so on.
A stand-alone policy should you lose your job through involuntary redundancy. It’s important to remember that if you choose redundancy protection on its own it’s because you are worried you may lose your job, if this is the case you will also lose any protection for accident and sickness your company provided.
Income Protection Options
As with all things, the more options you choose the higher the price. Income protection is no different and different insurers load the options differently. It is therefore important to determine what you need and what you would like so we can find the best income protection policy available to you in the market place. Below are some of those options.
This is the period (in weeks or months) following a claim before the benefit you are expecting is paid to you. The longer this period is, the cheaper the premium cost of the plan. It is normally based on what your employer sick pay (if any) is, and how long you can survive financially (i.e any savings you would use).
This can be one year, two years, and five years per claim; or up to your selected retirement age. The shorter the maximum period per claim the cheaper the premium becomes; however, the plan will stop paying if you are still off work after the selected period.
Level or Indexed
‘Level’ means that the amount you receive will remain the same throughout the time you have the insurance, regardless of whether your income or expenditure increases. Alternatively, the amount you receive can increase each year in line with inflation, using either the retail price index or the consumer price index.
Guaranteed, Reviewable and Age Costed
With guaranteed premium policies, the basic premium you pay stays the same throughout the policy term unless you increase the required income amount (or if you have indexation). A plan with reviewable premiums (typically ASU) is reviewed by the provider each year (like home insurance) and a new set of terms are then issued for the next 12 months.
There may be no change. But, the provider can change the premium, and/or the terms and conditions; and, at worst, remove the cover.
Age-costed premiums, change each year based on your age. These changes are pre-set by the provider and are either ‘set in stone’ or can be reviewed. However, the provider cannot change the terms and conditions of the plan in any way or remove the cover.
Own or Any Occupation
When the ‘Own Occupation’ definition of incapacity is chosen, the policy can pay out for any medical condition that prevents you from working in your own specific job role. When ‘Any’ is used, the insurer will only pay you if you are unable to perform any occupation. ‘Own’ is more expensive than ‘Any’.
Waiver of Premium
If ‘waiver of premium’ is selected then, when you begin receiving an income from the insurance policy, the premiums paid will be refunded back to you until the claim finishes. Most ASU plans do not offer a waiver of premium option, meaning you must pay for the plan whether in claim or not.
Benefits in Kind / P11D benefits
Some insurers also offer the option of protecting the value of any employment benefits, such as a company car or private health insurance.