Building a family comes with certain financial responsibilities and it’s critical to ensure that you and your loved ones have a financial safety net to protect against the unexpected. COVID-19 has brought the importance of income protection into sharper focus than ever before, as it reinforced the fact that illness does not discriminate and any of us can be struck down at any time.
As Boris Johnson makes plans for the British economy to “build back better”, families should be reviewing their own financial arrangements and integrating resilience into their plans. Whether your family has one or two breadwinners and any number of dependents, the sudden loss of a key income stream can prove catastrophic. Employers are only legally obliged to offer Statutory Sick Pay for a period of 28 weeks at a rate of £96.35 per week.
Beyond this, individuals are advised to apply for Universal Credit but these payments are unlikely to cover even the essential costs for families such as mortgage repayments. For a couple where both are aged 25 or over, Universal Credit payments come to £509.91 a month but it can be increased if you qualify for ‘additional elements’.
For example, you can receive an extra £237.08 per month if you have one child born after 6 April 2017, or £282.50 per month if you have one child born before 6 April 2017. The total amount is still unlikely to cover even the essential, basic costs such as food, clothing, childcare and education.
How does Income Protection work?
Income protection essentially provides a replacement, regular tax-free income stream as a percentage of your take-home salary if you are unable to work due to physical or mental health issues. Depending on the type of policy chosen, it will pay out either for a set period of time, until you’re well enough to return to work or until retirement. While the conditions covered vary between insurance providers, most policies are comprehensive and include common physical and mental health issues such as anxiety, depression, and musculoskeletal disorders.
One of the key factors that determines your premium prices is how long after you fall ill or become disabled that you start to make payments. Otherwise known as the deferral period, most policies require a minimum wait of four weeks but payments can usually start up to two years after you stop work.
Many people choose to claim after their statutory sick pay period comes to an end and they have used up any extra employee benefits to which they are entitled in this capacity. Usually, it’s a case of the longer you wait to claim, the lower your premiums will be.
Is Income Protection right for me?
There are many factors to consider when it comes to taking out income protection. This includes considering any other type of insurance you or your family already have, and whether another type of cover such as critical illness may be more suitable for you needs and chosen budget. For advice with making the best decision for you and your family, contact TR Wealth today.
Risk Disclaimer: The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or its associated representative shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.