Income Protection – what? why? What?

By tonyLife Insurance

I talk about income protection a lot. It is something I am quite passionate about. As we see more in the news about how less people are working due to ill health, I think it is only becoming more important.

Let me explain why you really should be looking at it.

What is income protection?

Income Protection is exactly what it says. It is an insurance product that protects your income. It pays you an income if you are unable to work due to accident or illness.

You can generally cover up to around 60-70% of your pre-tax income, which if you cover the maximum is only marginally less than your full income. There needs to be an incentive for you to go back to work.

Why do I need it?

There are 2 very good reasons why you should look at income protection if you are reliant on your income. The first is the obvious benefit. If you can not work how are you going to pay your bills? How are you actually going to live?

Normally when those questions get raised, we get one of the following:

  1. They wont get sick – great! But what happens if you do? There is a great link here to check on your odds – https://riskreality.co.uk/gen
  2. I have sick pay – great! But the average claim for income protection is around 6-8 years. The average sick pay is 6-12 months. What happens if you are Mr or Mrs average?
  3. Family will help – great! But to what extent and how long for and is that really fair on them?
  4. The state will provide – ermmmmm… will it? (I will go into that more further below).
  5. It wont pay out – LV paid out 95% of claims in 2023, Aviva paid out over 92% of claims.
  6. It is too expensive – Maybe. But I cover enough of my income to pay my mortgage and bills. That costs me about £20 per month.

So going back to the fourth point, Will the state provide?

The state will provide or more actually might provide. As things stand, if you are over 25 years old you will get £90.50 per week during the assessment period (less than £400 per month) of the Employment & Support allowance benefit.

After the assessment period you will either continue to get £90.50 or you may be upgraded to £138 per week or £599 per month! Although other benefits may also be available.

However, recently there was a report released which suggests sickness benefits will need to be cut due to the increasing number of people claiming them – https://www.bbc.co.uk/news/explainers-68814023. In addition to that, the PM has recently announced that Drs will no longer be able to provide sick notes. What that will mean is anyones guess at the moment. But it will likely mean you need an assessment before you are able to claim sickness. I do not see it becoming easier to claim sickness benefits, which may mean if you are ill you have to fight harder to prove it – https://www.itv.com/news/2024-04-19/sunak-to-demand-end-to-sick-note-culture-in-speech-on-welfare-reform

What is the other good reason for Income Protection?

Many income protection policies have “additional benefits”, these vary from provider to provider.

When I took my own policies out, I chose the providers based on the additional benefits. In my case those benefits are:

Best Doctors – This is a great added benefit and one I have used myself! If you have a medical problem, you can send off your reports to get a second opinion on the diagnosis and on the best form of treatment. This can be used by the policy holder and their children if under a certain age.

GP Appointments – I think we all know how difficult it can be to get a GP appointment at the best of times. Some providers offer a number of internet based appointments which can be booked in from anywhere in the world (whilst you are on holiday for example) and with as little as an hours notice. They can also prescribe medication. Imagine having an appointment and a prescription on the same day!

Bupa Helpline – Having a young child we have used this a few times! The first time I used this was after trying to get through on 111. We were on hold for 10 minutes with no answer. I called the Bupa helpline and was through to a trained nurse in 2-3 rings!

Halo Service – This is something new. Unlike the above defined benefits, the halo service is something different. They talk to you about your symptoms and then can pay for or contribute towards specific treatment. As an example, they may pay for a physiotherapist or some counselling sessions. There is nothing listed for what they will or will not provide which makes it nice if it falls outside of any of the above for what would help you.

There are all sorts of other added extras in the varius policies. Some of those are included free, others come at an additional cost.

Summary

Income Protection is such an undersold or underbought policy. Lets look at some simple facts:

  1. Most of us need our income to support our lifestyle.
  2. Most of us probably cant live on £400-600 per month.
  3. Benefits claims are increasing and the government are looking to make it harder to claim.
  4. Who wants to go thorugh an assessment to be able to claim?
  5. With most providers paying over 90% of claims, they do pay out.
  6. The average claim is over 6 years!

I feel so strongly about income protection and how it should be the foundation of any mortgage application. I do not go in with the hard sale as I do not care if you get the policy through us or elsewhere. But I think people really should consider it.

Have a read up, pick our brains. You will be so thankful if you ever have to claim on it. If after having a read up, it is not for you, thats fine. But I strongly believe it is better to know about it and not take it up than not know about it and would have wanted it.