Protecting Your Income Against ill Health
Autumn 2007
Protecting your earnings against being unable to work because of ill health or injury should be a high priority for almost anyone of working age. According to research by Muinch Re (for Bright Grey July 2007) the chances of being able to work for a period of at least six months because of illness or injury during one's working like are one in five for women and one in six for men.
Of course, the welfare state does provide you to a certain extent and there are a number of benefits avaialable depending on circumstances. For example, one core benefit that kicks in after the first year of incapacity (during which the payments are lower) currently pays out £81.35 a week. There are other benefits that could be added to this, but you might seriously struggle on state benefits alone.
A fortunate few enjoy protection against the financial consequences of ill health through their employers. But if you think you are in this position, make sure you check it out. Many people think their employers have a scheme that means that they will continue to pay sick employee's salaries until they retire. But when they look at the detail, they usually discover that the provisions of the scheme simply undertake to pay their salary for six months or so.
By contrast, with an income protection policy, you could receive a tax-free income of up to around half your earnings if you cannot work because of long term health problems. The premiums may be less than you think, especially if you can choose a policy that starts after six months from the date of the incapacity and if you are relatively young, healthy and work in an office or similar occupation.
You do not have to be at work for income protection to be a very necessary form of insurance cover. According to Legal & General's March 2006 "value of a Mum" survey, replacing a mother's work around the home is likely to cost £24,500 a year. In many cases, the cost of hiring a nanny and other forms of home help if a non-working partner falls seriously ill could easily exceed this figure.
We can take a hard look at the small print of any policies to choose the most appropriate for you - the terms of these plans vary, so it makes sense to buy this type of cover with the assistance of professional advice.
