Why might you need income protection?

A lot of people would struggle to pay their monthly bills without their regular income, never mind any added treats throughout the month too. With this in mind, why do so many people go without income protection?

For those who aren’t sure, income protection is one of the most common types of protection insurance. This is a policy that will replace a percentage (usually 50%-70%) of your monthly income if you become unable to work because of ill health.

Some of the common reasons that make people think that income protection isn’t for them: 

• I have enough savings
• I would just use statutory sick pay
• I never normally get ill
• It’s too expensive
• My family will help me out
  
  

What’s the reality of these?

The average household is only ever 24 days away from the breadline, with less than £3000 in savings. On top of that, 1 in 5 households are said to have no savings in place at all. It has also been found that 30% of people with a mortgage are thought to only be able to afford two payments after their income stops. 

Thinking about any monthly bills that have to be paid and the recent rise in costs of living, how long could you go without your monthly income?

It’s not the most thrilling thing to do, but don’t guess this answer. It’s a good idea to go through your bank statements for at least the last 3 months, write down all the incoming and outgoings that you have. Put all these figures alongside any savings that you have together. Now setup the next 3 months as if they are exactly the same as the last ones, but, stop your income from today. I think you will be surprised at how quickly your ability to afford things becomes difficult.

What about sick pay I hear you say!

Statutory sick pay is paid to you by your employer if you’re too ill to work, and this can be paid for a maximum of 28 weeks. When it comes down to it, this only actually pays £99.35 per week*, which I’m sure wouldn’t cover the cost of most peoples monthly expenditure. Let’s write this a different way:

For 28 weeks, that is 6 ½ months, you will receive £2,781.80 for that entire time! Less than £3,000 to live on, for over a half a year.

Some people have good sick pay policy with their employer, this is where you get paid more than statutory sick pay if you are unable to work. It can often be 4 weeks full pay, or 6 months full 6 months half pay, for some it can even be income paid right up to retirement age. It’s a good idea to check what your employers offers, in case you do ever face this kind of situation.

Nobody likes to think about being ill, especially for a long period of time. But the reality is that it could happen to any of us at any time, unfortunately it isn’t always something that we can predict. 

A little while ago managing director Kathryn looked into some ‘risks’ for a 36 year old woman, what she found was quite interesting. There is a 5% chance of dying unexpectedly and a 14% chance of being diagnosed with a critical illness. As well as that, there’s a 50% chance of being unable to work for at least 2 months because of ill health. That’s a long time to be going without a monthly income and you can see that the risk of being ill and unable to work is far higher than dying at a young age.

The cost of an income protection often isn’t as expensive as people think, it could be a case of skipping a meal out for the month or buying a few less coffees. For a lot of people, it can actually be quite affordable. This isn’t us saying cancel your Netflix subscription and stop buying Costa coffees everyday and you too could afford that £4m house in the country. But it is us saying that it’s a good idea to think about priorities and protecting yourself.

A blog we wrote at the end of 2021, great value for money, breaks down the costs of protection insurance for people of certain ages. For a 21 year old wanting to receive £1,400 per month this would cost just £23.38 per month. The price then increases as you age, with the monthly premium being £33.89 for a 31 year old and £65.47 for a 41 year old. This isn’t to say that the price increases with age on the options we’ve quoted, it’s just showing the premium that it would be if you took it out at that age.

These policies were all based on having a 2 month deferred period which is quite common, and run until the age of 68 unless the policy is cancelled or premiums aren’t paid. A deferred period is basically the amount of time you have to be off work before receiving any money from the insurer. 

When it comes to applying for income protection, the application will be very similar to that of other types of protection insurance. It will start off by asking some basic questions such as your name and age. It will then ask questions about your health and family history. Depending on your responses on this section, it could be that the insurer will want to request a medical report from your GP to be able to assess your application. The application will also ask questions about any risky hobbies that you might have and of course, questions about your job and the income which is to be replaced. 

The insurer will look at all of the responses and gather any extra information that they think they will need to then make a decision. You will then either be offered terms, or your application could be postponed or declined. At that point we would start to look at other options or specialist insurers.

Using a protection insurance adviser can be a huge help when going through the application process. They are able to help answer any questions you might have, explain any of the jargon which pop up and chase up the progress of the application itself. If income protection is something which you’re thinking about, our advisers at Cura are more than happy to answer any questions you might have before deciding to go ahead with an application.

*Correct as of 9th May, 2022.

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