Why you can’t afford to ignore income protection
‘Jobs for life’, it seems, are becoming a thing of the past. With the UK economy in a state of flux, several big name firms going into administration and unemployment rising slightly at the start of 2018, the future of many workers is uncertain. And unfortunately, many of us don’t have a financial ‘plan B’ in place should the worst happen.
Latest figures from the Office for National Statistics show that in the three months to January 2018, the number of unemployed people in the UK rose by 24,000 to 1.45m. National news headlines have included the collapse of many retail and construction giants, as well as the difficulties faced by others. Carillion went into liquidation at the beginning of 2018, leaving almost 20,000 staff in the UK facing redundancy. The UK arm of Toys ‘R’ Us has gone into administration, New Look is shutting 60 stores and Italian restaurant chain Prezzo is closing almost 100 restaurants. And, with even British stalwart Mothercare revealing it’s in dire financial straits, would you be able to continue to pay the bills if this happened at your place of work?
This is where that plan B comes in. Income protection insurance is designed to provide you with financial back-up and peace of mind if you find yourself made involuntarily redundant or unable to work for a while because of an accident or illness. Benefits or savings might help to tide you over until you get back on your feet again, but the reality is that many of us just don’t have enough savings to make a real difference. According to the Chartered Insurance Institute (CII), almost 50% of UK households have savings of less than £1,500 and that up to half a million people would find their funds running out in just a few weeks if they lost their income.
Redundancy cover is a special type of income protection and can be a lifeline if you were to involuntarily lose your job. Many redundancy policies provide you with tax-free monthly instalments of up to 70% of your gross income for a set period - often up to 12 months - giving you the breathing space you need to find your next role.
If you’re self-employed, you might not face redundancy but the collapse of one of your main clients could have an enormous impact. It’s estimated that thousands of sub-contractors are feeling the ripple effects of Carillion’s collapse, yet recent research by our insurance partner LV= shows that just four percent of self-employed people have income protection, compared to a national average of 11%.
Self-employed people are also at risk if they become too ill to work for a spell. Recent research by Scottish Widows shows that 76% of business owners don’t have anyone to cover them if they became ill and unable to work, and on average it would cost them £67,550 to take extended sick-leave for a year!
Accident and sickness insurance is another type of income protection that’s available to employed and self-employed workers. It replaces your income if you’re unable to work due to illness or injury, with short and long term policies available. Accident and sickness cover isn’t the same as critical illness cover, which pays out a lump sum on diagnosis of a terminal or critical condition defined in the policy, but this can also be an invaluable safety net for you and your family.
Everyone’s circumstances are different and we have a number of guides and articles on the different types of cover available to help you make an informed decision. Comparing income insurance from several providers is the best way for you to get the right policy and plan ahead, whatever’s round the corner.