Income protection considerations

Time to read: 6 minutes

We’re all for looking on the bright side of life but we humans are not invincible. Sometimes life has a nasty surprise in store that can knock us sideways. If something happened to you that meant you couldn’t work, you’d need a plan of action to keep your finances happy.

There’s no getting away from it. According to the Association of British Insurers, every year one million people in the UK are unable to work because of a serious accident or injury.1 If you happened to be one of them, you’d want to be able to focus on your recovery without worrying about money.

If you’re lucky, your employer would provide you with sick pay. But not all do – and even if they do, it could be limited so it’s worth checking your benefits. 

But what if you don’t have a generous boss? Or if you run your own business, work for yourself or work flexibly here, there and everywhere (in the so-called ‘gig’ economy)? Or if you’re a carer or a homemaker?  Then income protection could make sense for you.

Perhaps this is something that’s never even crossed your mind before. You wouldn’t be alone. Our research shows that 84% of people who financially support someone in their family don’t have a policy that would pay a regular sum if they couldn’t work because of an accident or illness.2

Income protection is often overlooked because of other more ‘needy’ insurances, like car and home. However, it quietly packs a real punch. 

 

Let’s take a look at 4 reasons it’s worth getting to know this cover better to consider if it’s right for you.

 

1. It’s a safety net when you can’t work

Income protection will pay you a percentage of your income if you can’t work because you’re ill or injured. Common causes of claim include psychological issues such as stress, anxiety and depression, and musculoskeletal problems, such as back pain and cancer. 

The idea is to give you the financial cushion you need to cover your outgoings until you’re able to go back to work or until you retire. And as income protection policies are based on your regular income, it doesn’t matter if you have one job or three, have a fixed contract or are self-employed, you’d receive a fixed percentage of what you earn.

With most policies, there’s a set period of time after you stop working before you receive any money to complement any existing sick pay you may be entitled to.

And it’s worth remembering that income protection won’t pay out if you’re made redundant or your employer reduces your working hours. That’s why it’s also important to have an emergency fund so you’ve something to fall back on in case that happens.

 

2. It protects the essentials  

Sadly, the bills don’t stop just because your wages aren’t coming in. Income protection could enable you to keep paying for the things that make your everyday world go round:

  • Mortgage or rent
  • Household utilities like gas, electricity and water
  • Insurances like home, contents, car, life, critical illness and pet
  • Groceries
  • Mobile, internet and TV

 

3. It could help to look after the fun stuff too

Just because you can’t work for a time, it shouldn’t mean you have to give up all the fun things in life. Having a monthly income coming in could help to pay for occasional meals out and day trips. After all, raising your joy is an important part of recovery.

 

4. It gives you that breathe-easy feeling

Income protection might seem a little strange at first. Like any insurance, it’s a thing you buy and yet you seemingly don’t get anything for your money unless you need to make a claim. But it earns its keep in another way by acting as a permanent comfort blanket. Knowing it’s there ready to spring into action, you can rest easier.

 

Common myths about income protection 

 

“Income protection doesn’t pay out”
Actually, in the majority of cases, it does. According to the Association of British Insurers, the insurance industry paid out over £600 million in income protection claims in 2017.3

 

“It’s expensive to buy”
You might be pleasantly surprised. Most income protection policies are quite flexible, with options that allow you to tailor a monthly premium to suit your needs – and your pocket.

 

“I don’t need it as I’m covered by the state” 
Even if you’re eligible to receive statutory sick pay, you’re limited to receiving just £92.05 per week and you’ll only receive it for up to 28 weeks.4 If you’re off any longer you’d need to apply for other benefits and there’s no guarantee you’d qualify.

 

“It’s not for me as I’m self-employed” 
This is a common misconception, but there are policies that are designed to cover self-employed people too.

 

 

What about ‘self-insuring’?

Absolutely, you could come up with your own financial action plan and set some money aside in a dedicated savings account every month. Of course, it would take a while but in theory you could in time build up a fund to cover you if you’re unable to work. But if you needed it, how long would it last?

Another thing to bear in mind with this option is you’d need to be disciplined. This fund would be for emergencies only – and no, Christmas or holidays don’t count.  

 

Talk to an expert

If you’re not sure what’s best for your situation, you don’t have to puzzle this out on your own. 

One of our financial advisers would be happy to provide you with some personalised protection advice over the phone. 

How it works is they’ll spend time getting to know your situation before recommending a policy and level of cover that’s right for you. The plans they recommend are sourced from a carefully-selected panel of providers, which includes HSBC. You’re under no obligation to follow our recommendations – and you won’t pay a penny for receiving our protection advice.

If you decide to take out the recommended policy, you’ll pay for the cost of the policy and we’ll receive a commission from the protection provider. You’ll find details about this in the policy’s key features document. But don’t worry, your adviser will discuss all this with you during a friendly, no-strings chat before you begin.

 

1 Source: The Association of British Insurers, Welfare reform for the 21st century, 2014 (PDF, EN)

2 Source: HSBC, ‘The Power of Protection: Facing the Future’ report, 2017 (PDF, EN)

3 Source: The Association of British Insurers, Protection insurers pay out record-breaking £5 billion in claims, 2018

4 Correct as at October 2018