How long would your savings last?
In light of recent world events, namely Coronavirus, social distancing, lockdown and all that added to the usual day to day pressures of life in general, many of you reading this will probably have paused for thought at some point over the last few weeks and had a think about your own financial situation and how you and your families would cope if the worst happened.
Many of you will know what life insurance is, a policy that pays out a lump sum on death. But what would you do for money if you became too ill to work?
Income Protection may be the solution; a valuable benefit, that pays out a monthly amount for an agreed amount of time, or until you are well enough to go back to work.
The problem is, not many of us have this valuable benefit. What’s more surprising is that when you consider 1 in 4 of us would struggle financially if we were out of work for just 4 weeks.
Put another way, if you had a machine on your kitchen table that provided you and your family with their daily income needs, would you insure this to make it sure it continued to work no matter what?
The attraction of an Income Protection policy is that it pays out if you suffer an accident or ill health. Unlike a Critical Illness policy, you are not restricted to a list of defined conditions for the pay out to be valid. Many policies now come with additional ‘add-on’ benefits included that assist with rehabilitation, mental health support and a second medical opinion to name a few.
Typically, an Income Protection policy can cover up to 60% of your earnings. It can provide cover up to age 70 and generally, there is no limit on the amount of times you can claim. If affordability is a concern, many providers now offer a low-cost budget version that will pay out for a maximum of 12 or 24 months per claim.
For small businesses there is a generally, tax efficient solution available that will allow them to provide valuable Directors and/or employees with an employee benefit to help them financially while they are unable to work. They can insure these employees’ taxable earned income, employer pension and National Insurance (NI) contributions.
Finally, around 63% of employees were affected by financial worries in 2018 whilst statistics estimate that around 131.2 million working days were lost due to sickness in 2017 alone. Putting an income protection policy in place will give you peace of mind should you be unable to work due to accident or sickness.
Whether or not these types of policies would be suitable for you, and their tax treatment, depends on your individual financial circumstances. The information given in this article should not be construed as financial advice.
For an initial, free, no obligation chat around your protection needs please get in touch with Nathan Douse one of our experienced Financial Planning Consultants on 01772 821021 or email