Could you afford to retire tomorrow? It's a big resounding no from me!

So this popped up in a conversation I had recently and to be honest it scared me quite a bit. The answer is no. I cannot afford to retire tomorrow. I have a mortgage and two young children. There is no way that I could live off statutory sick pay of £88.45 per week.

So I am setting a New Years challenge! For the month of January take your salary and squirrel it all away, leaving just £383.28 for you to live on for the month. That includes your mortgage/rent, utilities, travel costs and food expenses. For me, statutory sick pay would probably cover about half of my monthly mortgage repayments and I am sure that I am not the only one in this boat!

There are two main ways to protect your earnings through insurance. Firstly, you can look down the standard route of an Income Protection policy. It does what it says on the tin: it’s an insurance policy that protects your income, if you are too ill to work. You can usually insure up to 50-75% of your gross income on these policies. A successful claim could see you receive the monthly benefit all the way up to your chosen retirement age.

The next option that you have is an Accident, Sickness or Unemployment policy. Again, the clue is in the name. If you suffer from an accident, illness or are made involuntarily redundant this policy type can see up to 50-75% of your income replaced each month. These policies pay claims for between 12 an 24 months. The beauty of this is that you can have the added benefit of redundancy cover too.

Some people prefer some of the features of Income Protection so will opt for that cover, largely due to the ability to claim long term, then purchase separate standalone redundancy insurance.

Both types of income protection insurance are highly flexible and you can basically build the policies to match your requirements and budget.

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