Income protection has grown in popularity since the beginning of the Coronavirus outbreak, with new data showing that 52% of UK consumers bought income protection as a result of the COVID-19 pandemic.
This is because the pandemic highlighted, more than ever, the importance of having the right protection in place to financially safeguard yourself and your loved ones.
But what is income protection and what can it be used for?
Award-winning life insurance broker, Reassured, explains more about this insurance policy and provide their top 5 uses for income protection payments.
What is income protection?
Income protection is an insurance policy that will cover a percentage of your income if you’re unable to work due to sickness or injury.
Typically between 50% – 70% of your usual income will be paid out by an income protection policy, after a claim has been made, in monthly (tax-free) payments.
Ultimately income protection can prevent you from having to make changes to your lifestyle, dip into savings that you were planning to use on something else or having to rely on financial help from others.
The payments you receive aren’t tied to any specific financial commitments so you can use them however you see fit.
However, it’s wise to use the payments to cover whatever you would usually spend your monthly pay cheque on. Commonly, income protection is used to cover essential living costs such as:
- Mortgage and rental payments
The largest expense we’re likely to incur in our lifetime is our mortgage, so it makes sense to have protection in place to allow you to continue making repayments even if you can’t earn your usual income.
The current statutory sick pay scheme offered by the UK government will pay out £99.35 per week, totalling around £397.40 a month.
With average monthly rent in the UK currently at £1078 (having risen 8.7% from the previous year) – statutory sick pay wouldn’t even cover half of this amount, let alone other costs on top of this.
This is where income protection can be a great help as you can still receive a proportion of your monthly income while you’re unable to work which can help you to keep up with these payments.
- Household bills
Whether you’re a homeowner or a renter, household bills can be a huge drain on your income at the best of times.
While you’re unable to work it could be a daunting task trying to keep up with all the bills that come flooding in each month.
From gas and electric, to water and Wi-Fi, income protection payments can help to prevent you getting bogged down with these costs.
- Credit card bills and loan payments
Around 69% of UK adults have a credit card and 9 out of 10 cars purchased in a year are paid for using some sort of financing, with the average monthly cost being around £250.
With this in mind it’s important to consider whether you would be able to keep up with monthly payments if you were unable to work.
Failure to make payments on time can often result in interest being incurred which can make these expenses even more costly over time.
Income protection could help to provide you with the funds to keep up with these monthly costs while you’re unable to work.
- Food shop
When you’re out of work even the necessities like the weekly food shop can seem like a huge financial stress, which could force you into making cutbacks to your shopping list.
Thankfully, income protection payments can allow you to continue your current lifestyle without having to make sacrifices.
- Leisure expenses
Just because you’re unable to work shouldn’t mean you can’t go out and enjoy your usual hobbies or entertainment.
Whether it’s going to the gym to help with your mental health, relaxing at home watching Netflix or enjoying a takeaway or meal out, payments received by an income protection policy can enable you to still enjoy your social life.
Similarly, if your loved ones have hobbies and activities that your income currently pays for, income protection could help them continue with these. For example, swimming lessons, gymnastics, or other clubs for the kids.
What won’t income protection cover?
In terms of what you’re covered for with an income protection policy, there are a few instances where you won’t be able to make a claim. This includes:
- Self-inflicted injuries
- Injuries/illness as a result of drug or alcohol misuse
- Pre-existing illnesses
In terms of what financial commitments can be covered by income protection, there’s no restrictions on what you can use them for. Once the money has been paid into your account it’s up to you how you spend it.
How can you secure income protection?
Income protection can be taken out directly through a provider, through a comparison site or through a broker (like Reassured Advice).
Comparing quotes through a broker will allow you to see offerings from multiple providers so you can find the provider who will offer you the best deal.
It’s also completely free to obtain quotes from a broker and you’re under no obligation to purchase a policy there and then.
Speaking to a broker also means you can ask as many questions as you need to ensure your policy is what you need it to be.
Until next time.