Income Protection could be more important than you might think, for example a survey conducted in 2011 by Unum reported that one in 10 people are likely to fall ill or have an accident and not be able to work for a period of six months or more, whilst one in three have previously had to take over a month off work due to sickness or an accident.
However, the average worker could only survive for 54 days on statutory sick pay of £86.70 a week, so you might think that the majority of people do protect their income.
If you feel that you could not survive on your savings or sick pay from work for a sustained period of time, then you’ll probably need to find some other way to keep paying the bills – and you may want to consider income protection insurance.
Income protection insurance is an insurance policy designed to support you if you can’t work because you’re ill or injured. It pays generally between 50 %– 70% of your income until you can start working again, until you retire or until the end of the policy term, whichever is sooner.
So it must be a popular plan?
You would think so, but ‘Which? Money’ stated that: “The one protection policy every working adult in the UK should consider is the very one most of don’t have – Income Protection.”
In fact, a recent survey found that only 8% of us held an income protection policy. Worryingly, more of us insure our gadgets and our pets than have Income Protection. One industry survey showed less than a quarter of people deemed protecting their income to be essential, compared with 74% who said the same of needing access to broadband internet.
So what will the state provide…
Many believe that the state will take care of them when they are unable to work due to accident or sickness, but will their support be enough?
Statutory Sick Pay (SSP) is £86.70 per week if you’re too ill to work, which is paid by your employer for up to 28 weeks. In order to qualify for SSP you need to have been off work for 4 more days in a row (including non-working days).
An alternative to SSP is Employment and Support Allowance (ESA), you may get this if your illness or disability affects your ability to work and you are not getting Statutory Sick Pay and you haven’t gone back to work. You can apply for ESA if you’re employed, self employed or unemployed. Initially the maximum you can get is £71.70 per week, dependant on your age. However, based on earning £30,000 per year, that is an 87% decline in income, suggesting that government support may not be sufficient to maintain the standard of living that you have become accustomed to.
It’ll never happen to me…
As previously stated, one in 10 people will likely be off work for more than six months , with one in three people having spent over one month off work due to ill-health. However, too few people hold income protection plans and run a significant risk of financial hardship if they are unable to work due to illness or accident. This makes the need for such plans all the more important as many experience unpaid sick leave and would require financial support to stay out of debt during their absence from work.
Whilst research has highlighted that 39% of people had enough savings in place to last three months if they had no other form of income, a further 30% admitted they would have difficulty lasting one month without pay. However, even if you did have some savings to last, having worked so hard to build your savings up over the years, would you want to use these to cover just the bare essentials? When you are fit to return to work, how long will it take to build your savings back to the level they were before you were ill?
Do I need an Income Protection plan?
Before you think about taking out income protection insurance, check what sick pay benefits your employer provides. You’ll be surprised how many don’t know what sick pay they get from their employer. Some employers offer income protection through work as a benefit; your employment contract, handbook or personnel department will have details if this is the case.
If you are self-employed, then this will not be the case, you will have to make a decision as to how long you could cope without an income coming in to meet your financial outgoings and what steps you need to take to meet these commitments in the long term.
Once you have found out how long you receive sick pay benefits from your employer or how long you can rely on your savings, you can then decide what level of benefit you require, the deferred period and the term of the plan. Income Protection benefits are usually based on a percentage of your earnings; 50% to 70% is the norm with the benefit payments currently being tax-free. The plan will pay-out once the waiting or deferred period has passed, this generally ranges from one to 12 months after you have put in a claim. The longer the deferred period you choose, the lower the premiums.
So how can the Shepherds Friendly Society help?
We offer the Simple Income Protection plan that offers affordable protection to give you peace of mind if you are unable to work due to illness or an accident. The plan is highly flexible; not only can you choose to protect up to 70% of your normal income, but we can also offer a waiting period starting at just two weeks before you can receive the benefits.
In addition to this you will also receive our enhanced benefits from our partnership with Nuffield Health. Giving you 24/7 medical advice from a GP, an emotional wellbeing app to help your mental health and 20% off a Nuffield gym membership.
Applying is quick and easy, just click here to apply for a Shepherds Simple Income Protection plan.