It’s been crazy busy here, despite all the uncertainty around BREXIT we collectively achieved our record number of mortgages submitted in a single month in October! The remortgage market will remain lively through the Brexit uncertainty but we do believe the property market will slow until at least a BREXIT deal is agreed and on the table… But with Theresa May having agreed a draft Brexit deal yesterday with the EU…. all we wait for now is for the ministers and parliament to give the thumbs up to the deal.
Anyhow enough of Brexit, back to the subject in hand….
How do you protect your income?
You can protect yourself against losing your income if you are unable to work due to ill health or a disability with ‘Income Protection Insurance’. I personally refer to the product as a ‘long term sick pay plan’.
Providing an income when you can’t work
An Income Protection plan will provide you an income if you are unable to work due to ill health. The policy pays a monthly tax-free income for a set length of time – normally until state retirement age.
The payout can be level or set to rise with inflation. It pays for as long as doctors agree that you are unable to work for health reasons. The maximum cover you can have is typically 50-60% of your provable income before tax. Remember this is paid tax-free, so should you make a claim you may only be slightly worse off than you were when working.
The insurers limit the amount of cover you can receive so you have an incentive to get back to work! Everyone should consider this cover, as the State simply does not provide adequate protection. Be honest… if you lose your income OR your partners income, your life becomes financially challenging!
Premiums are priced upon your current age, health and the amount of cover required. You can keep premiums down by setting a policy up with a “waiting period” between the onset of the ill health/disability and the income kicking in, usually to coincide with the sick pay arrangements with your employer. In other words, it’s not meant for the flu. The majority of claims are caused by back or mental health problems.
If you are self-employed or own your own business, you’ll not receive sick pay therefore it is even more important you have an Income Protection plan in place.
Seven things to consider before buying income protection
1. Amount of cover Typically you can insure 50-60% of your gross salary free of tax. But how much do you need each month to live on?
2. Length of term Are you covered for long enough? What will you do when your cover runs out? Typically, income protection policies should run until your intended retirement age. If premiums are too expensive then cover can be limited to either one or two years, which while not ideal is far better than nothing at all.
3. ‘Waiting period’ also known as ‘Deferred period’ Income Protection policies will begin to pay out after you have been unable to work for a set period of time. This time period is up to you and ranges from 4 weeks to 2 years. The longer the waiting period the less expensive insurance policies will be. How long could you survive financially without your income?
4. Indexation it is particularly important to make sure income protection increases with inflation as your earnings typically would.
5. Premium How competitive is the price you are paying?
6. Guaranteed premiums Your premiums might seem cheap today but will they stay that way?
7. Housewives/ house husbands Just because you don’t work this doesn’t mean you cannot insure an income. House persons can typically insure up to £15,000 per year. A house person may look after children but not be able to do so if they are ill meaning you may have an added cost of child care
Income protection should be considered by everyone but sometimes other polices are more appropriate. Expert advice is important to make sure you get the right cover for you and your family’s objectives.
We offer insurance products from a wide range of insurers and currently have a special offer. For all Income Protection policies that are set up and due to commence prior to Christmas 2018 you will receive £49 cashback after the first months premium has been paid – terms apply.