Many of us will insure a mobile phone, the contents of our homes, or an overseas holiday with barely a second thought, simply accepting it as one of the costs of life’s necessities. However, when it comes to protecting their monthly income most people either don’t know it can be insured or decide against it.
Some customers avoid taking out income protection insurance because
the monthly costs can seem expensive
compared to other personal insurance
premiums.
Since the pandemic, products
like income protection, critical illness
and life insurance have become
more important to have as many
people have experienced reduced
income due to furlough, redundancy
or self-employment wages drying
up. The Office of National Statistics
noted that in 2020 people aged 25
to 34 had average savings of £3,544,
which increases to £5,995 for those
between 35 and 44. In the same
year, the average monthly household
budget was £2,548 according to
personal finance advisor NimbleFins,
suggesting that if you became injured
or unwell enough to work, you would
have between one-two months before
you began experiencing financial
difficulty. Having a safety net like
income protection in place can secure
your future should the unexpected
happen.
Although incredibly useful
protection, without expert advice
these insurances may be difficult to understand. Bradley Hall’s expert
mortgage team are here to help you
navigate your way through any income
protection uncertainties that may have
prevented you from protecting yourself
previously.
What does income protection cover?
Income protection insurance, also
referred to as income replacement,
protects your monthly income if you
can no longer work due to a serious
injury or illness. This protective
cover differs from life insurance as it
safeguards you and your loved ones
whilst you are still alive, but are unable
to work and therefore facing financial
hardship.
How much does it cost?
There are several factors that affect
the premium when looking at income
protection such as age, smoker status
and health, occupation, lifestyle, and
hobbies, to name a few. There are
options to reduce how long the pay-out
would be made for, or to increase what
is known as the payment deferment
period. The payment deferment period
is the time between the accident or
illness occurring and payments starting to be made. Although, the payments
may be deferred, often those who have
income protection cover are given
access to benefits while they wait for
this.
If you are interested in income
protection but are apprehensive about
the costs, there are methods that can
keep you protected without breaking
the bank. Controlling your cost can
be achieved through only insuring
yourself and larger bills, such as your
mortgage and essential living costs.
Similarly, when working on the basis
that you can’t go to work, you are more
likely to be able to cut back on more
discretionary spending such as meals
out, holidays and transport, ultimately
funds can be saved here also.
Is Income Protection necessary?
Not having this type of cover
in place could leave you without a
sufficient safety net to cover household
bills and larger expenses like the
mortgage or rent, therefore looking
into this type of protection is strongly
suggested.
According to the Association of
British Insurers’ Welfare Reform report,
one million workers find themselves unable to work due to serious injury
and illness every year. As well as
around 250,000 people leaving
employment each year as a result of ill
health. These figures equate to around
one per cent of the population, with
60 per cent being the breadwinner
of the household, all of which could
have been prevented with the correct
protection in place.
How long should an income
protection policy last?
It is important to bear in mind
that the longer the policy runs for, the
greater protection that affords you
and your family should you become
incapacitated. However, in an ideal
world, protection insurance policies
should run up to the individuals
expected retirement age.
The importance of income
protection has never been as
highlighted due to the catastrophic
effect the pandemic has had on many
people’s incomes. However, income
protection insurance is not an easy
product to quickly compare and
getting the best deal often requires
advice and guidance. If this assistance
is not given, issues could occur with several factors including being over or
under protected. Talking to an expert
with experience of providing the right
protection based on an individual
needs can be invaluable.
Bradley Hall’s Mortgage team have
access to bespoke deals and guidance
to suit you.
For more information, please contact
mortgages@bradleyhall.co.uk or call
0191 383 9999
