Income Protection – The Need
Nine out of ten people who could benefit from Income Protection don’t have it. When it comes to protecting ourselves, often we perceive many other things as more important. Yet, we all hear the news of a friend or relative who is off work for a few months or more or has been diagnosed with a serious illness. It’s all more shocking to imagine this happening to ourselves. However, simply hoping it won’t happen will not prevent life from taking an unexpected turn.
Do you really want to gamble your future?
Avoiding Single & Double Jeopardy
The traditional family model used to be a two parent household with 2.4 children. The chances were that Dad went out to work and was the main breadwinner. Mum usually stayed at home; and even if she worked it was perhaps for just a few hours per week and she wasn’t considered the main earner. If you fast forward to modern Britain, the picture now looks very different. In addition to many who choose the single life, many couples, (with or without children) both work full time.
A Double Income No Option (DINO) household describes co-habiting couples who are dependent on both incomes to pay for essentials. Research from LV= shows that one in seven (14%) couples struggle to make ends meet, even with both incomes (Research from Opinium from 6-19 Oct 2015) and nearly one in three (29%), rely on a double income to maintain the quality of their lifestyle. For Single and DINO households therefore the impact of a lost income can have serious financial consequences often resulting in sacrifice:
Household income generally finds its way into one of three main categories; tax payments, essential spending and discretionary spending. Essential spending, which includes housing costs such as rent and mortgage payments, utility bills and loan repayments, makes up by far the largest proportion of typical household expenditure at 69%. Tax payments account for around 20% of pre-tax income while discretionary spending represents just 10%, leaving just 1% of pre-tax income set aside as savings. If a household income was therefore lost for a period it wouldn’t be long before “essential spending” was under threat.
It won’t happen to me
For some people this may be true, and good luck to us all. However, the law of probability is unfortunately against the majority of us, after all the human body is a hugely complex organic machine and therefore, like any machine, it can occasionally break down.
How long would your finances cope?
If the worst did happen how long could you survive without your income?
Savings Research from L & G* uncovered in 2014 suggested that the average Household believed that they could survive up to 77 days without an income. Unfortunately this is more than two and a half times the actual figure demonstrated with the average UK household having just £1,205 in savings. What L & G found was quite concerning; the majority of working age families (18-64 year olds) could survive for just 14 days. There were also surprising regional variances from the shortest period in Wales (7 days), to the longest, London, (83 days).
The office for National statistics, in a 2013 survey found that households are saving £177 per month on average but it would take almost 12 years 9 months to save one year’s average UK gross salary of £27k.
For many people a short term solution to a lost income would be to utilise savings. However, normal saving levels may be enough for a short term or in some cases, medium term absence, but if you were unable to work for a long period and suffered a significant drop in your income even the highest level of savings would eventually struggle to cope.
Income protection (IP), also referred to as Long Term Disability or Permanent Health Insurance (PHI), on the other hand provides a replacement monthly income for those unable to work due to accident or illness.
Depending upon the type of IP plan, a replacement income can be provided for as long as needed or well into age 60’s and beyond, if the insured suffers a very long term health issue. Once IP has started the insurer cannot cancel or restrict cover unless the policyholder stops paying, the policy reaches termination or the policyholder dies.
What is stopping people from protecting the one thing that pays for everything?
Cost of cover can also be an issue; however, the mistake that a significant number of people make is to automatically look to put as much cover in place as possible without first considering the actual cover they would actually need. Minimal state benefits will contribute and if you are seriously ill your lifestyle is highly likely to change. It is unlikely therefore, that many of us would actually need the maximum level of cover available.
If income protection is a serious consideration then consider a budget-based approach. Work out the level of monthly contribution you could afford to protect your income and find out how much cover you could get for your budget.
If you have established that cover is something you need to consider then please don’t delay, take the next step in protecting your and your family’s lifestyle.
As an AIA membership benefit, we have negotiated for you a 20% discount off your first two years’ subscriptions^.
For details of this exclusive offer visit www.pgmutual.co.uk/quotation and enter discount code ‘AIA’ or call 0800 146 307.
*Source: Legal & General Deadline to the Breadline research via TNS Global
^For full Terms and Conditions, visit www.pgmutual.co.uk.