Can your family survive without your income?

Do you have a backup plan, if you can't work for 6 months or even longer?

 

It’s important to be able to keep your finances healthy as you recover from an illness or injury. Being unable to work can quickly turn your world upside down. No one likes to think that something bad will happen to them, but if you couldn’t work due to a serious illness, how would you manage financially? Could you survive on savings or sick pay from work?

If not, you may need some other way to keep paying the bills – and you might want to consider income protection insurance.

 

You might think this may not happen to you, and of course we hope it doesn't, but it's important to recognise that no one is immune to the risk of illness and accidents. No one can guarantee that they will not be the victim of an unfortunate accident or be diagnosed with a serious illness. This won’t stop the bills arriving or the mortgage payments from being deducted from your bank account, so going without income protection insurance could be tempting fate. Providing monthly payments Income protection insurance is a long-term insurance policy that provides a monthly payment if you can’t work because you’re ill or injured, and typically pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner.

Keep your finances healthy as you recover from illness or injury: Replaces part of your income if you become ill or disabled It pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner There’s a waiting period before the payments start, so you generally set payments to start after your sick pay ends, or after any other insurance stops covering you.

- The longer you wait, the lower the monthly payments.

- It covers most illnesses that leave you unable to work, either in the short or long term (depending on the type of policy and its definition of incapacity)

- You can claim as many times as you need to while the policy is in force. 

- Tax-free monthly income Without a regular income, you may find it a struggle financially, even if you were ill for only a short period, and you could end up using your savings to pay the bills.

- In the event that you suffered from a serious illness, medical condition or accident, you could even find that you are never able to return to work. Few of us could cope financially if we were off work for more than six to nine months.

 

Income protection insurance provides a tax-free monthly income for as long as required, up to retirement age, should you be unable to work due to long-term sickness or injury.

 

Self-employment: If you are self-employed, then no work is also likely to mean no income. However, depending on what you do, you may have income coming in from earlier work, even if you are ill for several months. The self-employed can take out individual policies rather than business ones, but you need to ascertain on what basis the insurer will pay out. A typical basis for payment is your pre-tax share of the gross profit, after deduction of trading expenses, in the 12 months immediately prior to the date of your incapacity. Some policies operate an average over the last three years, as they understand that self-employed people often have a fluctuating income.

Cost of Cover: The cost of your cover will depend on your gender, occupation, age, state of health and whether or not you smoke. The ‘occupation class’ is used by insurers to decide whether a policyholder is able to return to work. If a policy will pay out only if a policyholder is unable to work in ‘any occupation’, it might not pay benefits for long – or indeed at all. The most comprehensive definitions are ‘Own Occupation’ or ‘Suited Occupation’. ‘Own Occupation’ means you can make a claim if you are unable to perform your own job. However, being covered under ‘Any Occupation’ means that you have to be unable to perform any job, with equivalent earnings to the job you were doing before not taken into account. You can also usually choose for your cover to remain the same (level cover) or increase in line with inflation (inflation-linked cover): Level cover – with this cover, if you made a claim, the monthly income would be fixed at the start of your plan and does not change in the future. You should remember that this means if inflation eventually starts to rise, the buying power of your monthly income payments may be reduced over time Inflation-linked cover – with this cover, if you made a claim, the monthly income would go up in line with the Retail Prices Index (RPI) When you take out cover, you usually have the choice of: Guaranteed premiums – the premiums remain the same all the way throughout the term of your plan. If you have chosen inflation-linked cover, your premiums and cover will automatically go up each year in line with RPI Reviewable premiums – this means the premiums you pay can increase or decrease in the future. The premiums will not typically increase or decrease for the first five years of your plan, but they may do so at any time after that. If your premiums do go up or down, they will not change again for the next 12 months.