Each year one million people in the UK find themselves unable to work due to a serious illness or injury (ABI 2017). Income protection insurance is designed to replace some or, all of your income if you are incapacitated and unable to work.
If something happened to you, would you be able to meet your essential expenditure let alone any discretionary outgoings? Could you survive on any savings you have and, if so, for how long? Would you be entitled to any sick pay?
Who will look after you? People, often mistakenly, think:
- Their employer will look after them
Many people believe they may be entitled to receive some financial help from their employer. However, in reality only 14% of people would receive sick pay for more than six months, and only 3% for more than a year.
The self-employed of course would not even have this potential security
- The State will look after them
Employment and support allowance (ESA) will pay up to £110 per week depending on the condition although if you have more than 16k in savings you won’t qualify.
To put this into perspective, according to the Office for National Statistics, the average weekly expenditure in 2018 for a family in the UK was £547.40 per week.
It’s so easy to think “it won’t happen to me” and therefore underestimate the risk. However:
Having discussed the subject with one of my clients, John, back in 2014, he did appreciate he needed to put some protection in place. On my advice he took out an income protection plan with an annual benefit of £30,000 (£2500 per month) and with a 3 month deferred period.
Last year John suffered a brain stem stroke and his wife, Helen, had to stop work as well to look after him.
He was only 42, fit and healthy and ran his own business.
They hadn’t been relying on Helen’s income to meet their household monthly expenditure although they very quickly went from two incomes to none overnight. Their emergency savings allowed them to cover their regular expenditure for the first few months, thus giving some breathing space, whilst they contemplated what the future may hold.
John spent 8 months in hospital and, initially, he could barely speak or move although he is now gradually recovering. He is wheelchair bound although his speech and all movement in his upper body has come back. His comprehensive income protection plan has paid him a tax free income of £2500 a month from the end of the waiting period and, he also received £100 a day extra for the first 90 days he was in hospital.
A support benefit under the plan has also given them access to both emotional help and practical advice which has proved invaluable at a very difficult time.
John is hoping to start working again soon, although he is unlikely to earn as much as he used to. However, the income he has been receiving from the plan will continue, albeit at a reduced level, until he is fully back at work and hopefully able to earn at his pre-disability level.
Helen is now also looking for some part time work too so the future is looking more positive for them.
Don’t just think it can’t happen because incapacity and illness affect many people every day.
For further information on eliminating the risk for you, contact a financial adviser.
This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned about the content hereof and any such action or inaction. Professional advice is necessary for every case.
Kerina Bradburn MLIBF, DipFA