Protecting your income
The importance of protecting your income
To suddenly have no salary but still have bills to pay and a family to care for is a frightening thought to consider, but there are ways to protect your income and make sure you can still afford to stay in your home and maintain your lifestyle should you lose your job or fall ill and be unable to work.
One way to protect yourself is to have a savings safety net. You should open up an instant-access savings account with the best interest rate you can find and start putting money into it regularly. Try to have enough money in it to cover your outgoings for at least three months with a view to it covering your bills and living costs should you find yourself without work.
You should also consider insurance. The three most common types of insurance that protect your income are income protection insurance, critical illness cover, and life assurance.
According to figures produced by the Association of British Insurers (ABI) , 19.7 million of the UK’s 27.2 million households had contents insurance in 2016, whereas only 5 million had whole-of-life assurance, 0.5 million had term life insurance and only 0.3 million had income protection insurance.*
Income protection insurance
Income protection insurance will replace some of your salary if you have an accident or serious illness that stops you working for some time. This income is paid until the end of the policy term, or until you are able to return to work, whichever comes first. If you are self-employed or have a job which does not come with sickness pay or protection scheme benefits then this type of policy can really benefit you.
Critical illness cover
Critical illness cover provides a lump sum payment if you become seriously ill or permanently disabled - it does not cover accident or injury. The payout can help clear mortgages and other financial obligations and pay for any changes you may need to make to your lifestyle or in adapting your living environment. Like income protection insurance, critical illness cover can be beneficial if you are single with no dependents as the lump sum payment can provide important support if poor health prevents you from working.
A life assurance policy will ensure that your family is financially secure and can continue to maintain their standard of living in the event of your death.
If you’re single and don’t have any dependent children you can probably get by without life assurance. If you are working your priority should be to protect your income.
Which income protection plan should I choose?
People have different reasons for putting a protection plan in place. There isn’t a better plan to have, they are all different and it is important to look at your own situation carefully before you choose which cover is right for you. Once you have made the decision, it is important to continually review the cover you have as your circumstances change.
- According to NatWest, the cost of raising a child at the age of 17 is around £192,187 - that is almost £31 per day.
Source: NatWest Cost of Raising a Child; March 2018
- Total UK personal debt at the end of January 2018 stood at £1.576 trillion.
Source: The Money charity; March 2018
- The average UK household owes £57,543 (including mortgages) or £7,615 (excluding mortgages).
Source: The Money Charity; March 2018
- 2.4 million people are claiming Employment & Support Allowance (ESA) or incapacity benefit.
Source: Dept. of Work & Pensions Statistical Summary,; February 2018
- By 2020, 47% of people are expected to develop cancer at some point in their lives.
Source: Macmillan Cancer Support, Statistics Fact Sheet; December 2017
If you would like advice on protecting your income, please contact Richard Penn below.
Chartered Financial Planner0151 2552300Liverpool