The cornerstone of good financial planning is ensuring you have enough income to meet essential bills. But what happens when this source is cut off?
For most of us, our income comes from our earnings. However there is no guarantee that this money will be maintained, as recent company failures such as Mothercare show.
One of the most obvious threats is redundancy, but you can also find your earnings seriously reduced if you suffer ill-health, forcing you to take time out of work, or reduce hours on a more permanent basis. Government statistics show that over 100,000 people leave the workforce each year following a period of sickness absence, so it can happen to anyone.
What protection is in place?
If the worst happens, and you are made redundant or forced to give up work through ill-health, you may receive only limited help from your employer and the government. Those who are too ill to work will get just £94.25 a week statutory sick pay for a maximum of 28 weeks. If you are self-employed, you may have to rely on universal credit benefits.
Boosting protection levels
Regular saving is one way to create a financial cushion. But you can also insure against being unable to work through ill health. An income protection policy will pay out a proportion of your salary, typically 50 to 70%, until you return to work, or the end of the term, or your death. Most policies will only pay out after a deferral period when you have been off work for an agreed period of time. Longer deferral periods should lower premiums.
The cost will also vary depending on the type of work you do: most insurers group jobs into different ‘classes’ of risk, so those who do a lot of driving or heavy manual work, for example, may pay more than an office-based worker. These policies differ from critical illness policies, which pay a one-off lump sum on the diagnosis of one of a specified set of serious illnesses.
For increased peace of mind in troubled times, we can help you work out your options.
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