Who Needs Income Protection Insurance?

Many of the UK’s workforce experienced a total shift in terms of their working life thanks to the coronavirus pandemic. From working from home to being made redundant, working life as we once knew it is likely to have been affected by the pandemic in one way or another. This has led to a dramatic rise in the amount of people securing financial protection to protect their livelihoods. An increasingly popular way of doing this is through income protection, which does what it says on the tin and protects your income.

It’s a policy that will pay out to you if you become unable to work due to long term illness or injury and can pay out up to 70% of your usual income in monthly (tax-free) instalments. But does everyone need income protection? Award-winning broker, Reassured, provide an insight on who is most likely to benefit from having income protection in place.

Firstly, let’s start with the basics…

How does income protection work?

Income protection works by replacing a proportion of your income if you become unable to work as a result of injury or illness. The amount paid out can vary but, typically, providers offer to pay out between 50 – 70% of your usual income in monthly instalments.

You’ll start to receive your income protection payments after a ‘deferred’ or ‘waiting’ period has passed. This is the time in between your first sick day and when you’d like your payments to begin – this is chosen at the point of application.

You can choose to be covered on a short term basis, which will allow you to receive pay outs for a maximum of up to two years, or a long term basis which can provide cover up until retirement. Unlike some other policies, there isn’t a specific list of illnesses listed within your policy, allowing you to claim for any illness or injury that prevents you from doing your job for a prolonged period of time.

How do I know if I need income protection?

It’s a sad fact but during our lifetime many of us will be impacted by a serious illness or injury at some point, quite often leaving us unable to work.

If this was to happen, would you have enough funds to maintain your current lifestyle for you and your family? Or would you struggle to make ends meet? For this reason, most people who work would benefit from having income protection in place. If you’re thinking about taking out income protection, there are some key questions to ask yourself to guide you along the process:

Are you employed or self-employed?

Most employed workers will benefit from receiving sick pay to help them financially while they’re unable to work. However, self-employed workers won’t benefit from this and may face a serious loss in income if they can’t work due to accident or sickness.

This is where income protection can be very beneficial as with long term policies you can be covered up until you reach retirement, giving you peace of mind that you can still take care of your financial commitments even if you’re unable to work.

Do you receive enough sick pay?

While receiving sick pay can help you to alleviate some financial strain, you may want to think about whether the amount you’ll receive is likely to cover everything you need it to.Every employee benefits package is different, and some workers may be better off than others.

For example, if your employer only provides statutory sick pay, this currently stands at £96.35 per week and is paid up to 28 weeks. If you’re diagnosed with a long term illness, would this be enough to cover all of your expenses? It’s also important to consider that each family in the UK spends, on average, £587.90 per week – which is more than double the amount of statutory sick pay you’d receive.

If you don’t have a family and just have yourself to provide for, you may be able to get by on this amount. However, if you have a family to provide for, it’s likely that you would benefit from some additional financial support.Whether or not you receive sick pay, or how long you receive sick pay for, can also help you when setting your income protection policy up as you may choose to have your deferred period end when your sick pay is likely to end.

Do you have your own savings?

Having your own personal savings to fall back on could help to ease the financial blow of being unable to work for an extended period of time. If you’ve just been putting money aside for a rainy day, and have managed to save a substantial sum, this may be enough to cover your expenses while you’re out of work.

However, for most of us, it’s likely that the funds in savings are reserved for something else. For example, if you’re saving for a house deposit and then suddenly become too ill to work, it would be a shame to have to dip into your savings and potentially have to start again from scratch once you’re back at work.

Income protection payments could help to keep you afloat without the need to dip into your own personal savings, allowing you to keep these funds for what they were intended for.

What’s the best income protection?

Finding the best income protection is a very subjective task, this is because income protection can be tweaked to meet your unique circumstances. If you have other forms of finance available to you, a short term policy may suffice to provide a small amount of cover should you need it.

However, if you’re self-employed or have no other forms of finance available to you, a long term policy can provide a much needed financial safety net for the remainder of your working life. Ultimately, whatever policy best meets you needs and fits within your budget will be the best policy for you.

 How can I buy income protection?

Income protection can be purchased in a number of ways. The first way being direct from any income protection provider. However, when doing this, don’t just go for the first provider you find as it’s likely you won’t secure the best deal. When buying a TV or a car, you’d browse around multiple suppliers until you found the best deal – income protection is no different.

You could compare quotes using a comparison website, but if you need to ask questions you won’t receive quick and personalised help. By purchasing income protection through a broker (like Reassured), they can compare quotes on your behalf and answer any questions you may have quickly and efficiently. Helping you to save time and money.