Protecting your income if you cannot work

income protectionWhat do you feel when the bills come in each month?

Probably that they are far too high and come round far too fast, and that you really should see if you and the family could cut back.

But how would you feel if you didn’t have money to pay them?  

The bills keep coming

Accident, Illness and unemployment can all cut off your income at any time. The bills will not stop coming in just because an income does. Being unable to cover everyday costs is bad enough, but what about your mortgage payments, and when there simply isn’t money to put food on the table?

Of course, you might have money in the bank designed to help if things go wrong. Enough cash to replace an income for six months is often touted as a good idea by those who write for the financial pages.

But these days, having a pile of cash in a savings account, where it will be losing value to inflation faster than it will earn interest actually makes very little sense. In the real world few of us can afford to have that kind of money sitting around. If we do have any spare cash, we probably want to make it work harder by investing it.

This might mean you have investments to sell. But sooner or later your well of wealth will run dry.

The protection you need

You need a financial safety net, and the good news is that it can be relatively easy to arrange.

You can give yourself and your family insurance protection against financial problems with income protection insurance. This can provide cover to replace part or all of your usual income.

There are two main types of income protection policy.

The first is Permanent Health Insurance, or PHI. This should not be confused with private health insurance that covers medical costs, and is a type of cover that allows you to protect a portion of your income, often set at 50% of your gross salary. It pays in the event of illness or an accident that stops you working, and can continue until your normal retirement age. PHI cover can be tailored to start once your employee benefits stop.

PHI may require a medical, and the costs will reflect your age and health history.

The second is Accident, Sickness and Unemployment (ASU) cover. This will allow you to protect the payments on your mortgage, other debts and even some extra income in the event of illness, an accident or losing your job through redundancy. ASU is more limited in scope and will cover you for a maximum of 12 or 24 monthly payments. ASU cover usually starts after 30 days, although some policies may mean a delay of 90 days before you can claim for the loss of a job.

Costs will again depend on your age and health, but may be lower than PFI cover.

Critical Illness cover

Critical Illness cover can also help provide financial security. As the name suggests, the emphasis is on cover in the event of specific illnesses, rather than replacing an income. This type of cover pays out a tax-free lump sum if you are diagnosed with one of the illnesses listed in the policy. These usually include most forms of cancer, heart attack and stroke. It’s designed to pay off your debts or your mortgage and pay for any adaptations needed to your home, such as a stairlift.

Only named medical conditions are covered by these policies, although some allow you to select the conditions that are covered. Common illnesses that might keep you off work such as back problems and stress are not included.

Similar policies exist which provide tailored cover for certain medical conditions only.

Arranging your financial safety net

To create the financial safety net you need, it makes sense to get professional advice from someone who understands the products available, and can explain how they could help you.

Please contact our protection specialists at Continuum today.

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