Across a working lifetime, consider this: the average annual income of about £30,000 (discounting inflation), could equate to about £1,400,000. This amount is almost six times the current average value of a UK home – circa £249,000.
Yet many will willingly insure their home, plus sensibly take out life cover to help pay off the outstanding mortgage (as a minimum), but far fewer apply the same principles to their own income stream.
(Sources: Office for National Statistics, Labour market overview, September 2021 release; Nationwide, House Price Index, August 2021)
Are we Invincible?
Most of us will feel that being off work long-term, and unable to earn an income is unlikely. But it has happened to 2.15 million people in the UK, who are currently off work due to long-term sickness.
(Source: Office for National Statistics, Labour market overview, September 2021 release)
Probability calculator
To get a feel for your own particular circumstances, why not use this probability calculator which sets out the ‘broad’ chances of you being off work for a period of time, along with suffering a critical illness, or dying. Simply enter your age, gender and smoker/non-smoker information into – www.riskreality.co.uk. Of course, it’s only topline data, and personal circumstances will differ.
It shows, for example, that there’s a 33% chance for a 35 year-old, non-smoking, male to be off work for 2 months or more from now up to a retirement age of 68. For a female, the comparable figure is 41%. If viewed as a couple, then the risk of it occurring to just one of them rises to 60%! And, once you factor in that they are also smokers, the comparable figures are 41%, 51% and 71%, respectively. Whilst these results are merely a guide, it shows that bad things can happen.
If it happens to you…
The upside (unless you’re a contractor or self-employed) is that you may, initially, benefit from ongoing financial support from your employer, if you were off work due to an illness, or injury. However, it’s only likely to be there for a defined period. Plus, there’s limited state support to try to access.
In which case you need to look at how you might cover any income shortfall, and this is where you could plan ahead and have an Income Protection policy in place.
If you benefit from employer support, then you could defer payouts from the Income Protection policy for that period of time, and face lower premiums as a result.
Income Protection will generally cover up to around 60-65% of your gross income, and dependent on the type of product you opt for, it could be a tax-free monthly payout until you’re well enough to return to work, retired or have died, whichever occurs first. And, if you’re still working and paying premiums, you can claim against it more than once.
Alternatively, if a lower monthly premium is better for your pocket, then you could opt for a scheme that only pays out for a specific period of time, generally one to two years (although it can be up to five, in some instances).
Funding your insurance cover
You may be surprised that by simply cutting back on some of life’s small luxuries (odd takeaway, cab ride, cafe coffee, magazine, etc), you can swiftly set aside the premiums for an insurance plan that protects your income stream.
Even better if you are one of the two in five Brits that have actually saved money across the pandemic period – a combined £5.8bn per month in 2021.* Part of these savings could be sensibly directed to paying the premium for an Income Protection plan.
(Source: *LifeSearch, Health, Wealth & Happiness, Q2 2021)
As with all insurance policies, terms, conditions and exclusions will apply.
