Each year, a million people in the UK suffer a prolonged absence from work due to illness, and up to half a million would find their savings have run out after just a few weeks.
(Source: The Chartered Insurance Institute, 2016 report)
If this happened to you, how would you meet your financial obligations if unable to work for an extended period?
One route, to deliver some peace of mind, is to take out an Income Protection policy. This product is designed to pay out a tax-free monthly sum in the event that you can’t work due to illness or injury. If you need to claim, it could deliver important financial support, particularly when you consider that the average age for making the initial claim is in the mid-40s.
What it covers:
In general, it will pay out until:
- You are well enough to return to work.
- You have retired.
- The policy ends.
- Or upon your death.
Whichever happens first.
Each policy will have different conditions, and you would obviously need to disclose any pre-existing medical issues.
Additionally, many plans offer further benefits, such as rehabilitation support, possibly giving access to treatments and therapies not readily available on the NHS.
This may be key for certain long-term conditions such as stress, where early intervention could be crucial for recovery.
Work out your finances
First though, you’d have to do the maths and establish if you would just receive the Statutory Sick pay of £89.35 a week in the 2017/18 tax year (paid for up to 28 weeks, if you qualify), or if there are additional benefits from your employer or the state. For 2018/19, it is £92.05 a week.
This amount is less than one-fifth of the average weekly wage of around £500*, which could leave a big shortfall in a person’s finances.
(Source: *Office for National Statistics, UK Labour Market, January 2018 release).
Once you’ve got an idea of a possible income stream, you can then decide when you’d like your income protection cover to kick-in (called the deferred period). The longer you wait, the cheaper the premium will be.
Also, do be sensible about how much you require until you’re able to return to work (or have retired). In the same way you wouldn’t need a payout via an income protection policy should be calculated in a similar way (up to a maximum amount). As before, the less you need, the lower the premium.
Income Protection is a complex product, with a vast array of options, so it is essential that you take advice.
As with all insurance policies, terms, conditions and exclusions will apply.