Quick Fact – The average age that a man makes an income protection claim is 48 and the average women is 43 according to Friends Life.
I love talking to clients about the fun stuff – what they want out of life financially and how investment planning can make this happen. However it would be very naive to assume things will always go in the client’s favour. Financial planning is often based on them being able to earn and therefore invest money regularly to achieve their goals.
If things don’t go to plan, I need to make sure that their safety net is robust – i.e. they won’t fall too far! I want them to receive an income if they are sick as their main priority. In an ideal world I would like this income to be similar to the income they were getting paid before they were sick. There are other things to consider too such as Critical Illness cover and also Life cover, but these are for another post.
Often clients will have some sick pay through work, so it is important to know what you are offered by work before you get any advice on the subject.
What it is?
Income protection is an insurance that will pay you a pre-arranged monthly amount for a pre-set amount of time should you be unable to do your job due to illness or injury e.g. £1500 per month until age 67. If you get better and return to work, the insurance will stop paying but your cover should remain in force and be there for you to make another claim should you need to in the future. With the best policies, claiming will not affect the amount your pay or add any exclusions to the plan.
You also need to know about deferred periods.. This is the amount of time between getting sick and paying out. The choice tends to be 4, 13, 26 or 52 weeks deferred. Therefore if you have 6 months sick pay through work, you would opt for a 26 weeks deferred policy. The shorter the deferred period is, the more expensive the cover is.
The amount you receive (under current legislation) is tax free and often insurers set the maximum at around 60% of your gross salary to avoid there being any incentive to be off sick.
Do I Really Need It?
What would be your (honest) answer to the question “how long could you live off your savings/partners earnings if you no longer had an income?” According to the ABI, more than 1m people find themselves unable to work because of a serious illness or injury.
Legal & General’s research shows that the majority of working age families could survive just 14 days if all they had to rely on was their savings or state benefits to pay the bills”.
If you are fortunate enough that you can “self-insure”, i.e. you have enough money to live off for ever, then you don’t need any income protection. Neither do you need it if you have it through your employer.
Tips On Buying A Policy
- Don’t buy solely on price – the quality f the contract is very important
- Look out for contracts that have the define the ability to work on your specific job rather than any job
- Make sure you disclose everything in your medical history to the provider to avoid a claim being rejected in the future
- Speak to a whole of market adviser. They will be able to produce a whole of market report to show you all the providers that are willing to cover you
- If you have had illnesses in your medical history, declare this to your adviser at the beginning before they conduct any research as different providers will be willing to insure against things that others aren’t
- If you already have a policy and you are female, get an adviser to check that it is still competitive. It used to be that income protection was more expensive for women than men but this was changed in the last ten years. Now all policies have to be based on age alone and not sex.
Did You Know?
- 35% of claims are due to mental illness conditions and 16% are due to musculoskeletal conditions (i.e. back injuries and arthritis)
- UK households spend on average £1,503 pm
- The average savings pot is £1,770
- More than 130 million days were lot to sickness absence in 2013
*figures from Friends Provident
Lots of Love
Miss Lolly xx
Smart Financial Advice for Women
Whether you need help with mortgages, investing, saving for a rainy day, or just tackling your financial fears, Miss Lolly will give you unbiased advice based on the very latest financial wisdom. No jargon, no lectures – just the vital stuff you need to know, in user-friendly language. Get in touch via her website.