Time to think about income protection: Should I be insuring my biggest asset?

In this blog, PM+M’s wealth management director, James McIntyre, takes a look at income protection insurance and why it would be worth taking out a policy sooner rather than later…

According to www.thisismoney.co.uk, the pet insurance market is set to be worth £2bn by 2023. This is clearly an important area of insurance for many, with the majority of pet owners understanding the value of protecting themselves from having any hefty veterinary bills to pay.

But have you considered insuring your most valuable asset: your income? Let’s take the example of someone who earns £30,000 per annum in today’s terms, on average, across their 40-year working life. Across this 40-year career, this salary would translate to £1.2m worth of earnings. When you think of income in this way, I’m sure many would agree that it’s an asset worth protecting.

HSBC has previously revealed that “8.5m households in the UK would not last the week on their savings”. With this in mind, it’s important to consider how you and your loved ones would manage if you were unable to work for any length of time due to sickness or accident. As a father of two young children myself, I know that being off work for a prolonged period without any income would have adverse consequences.

What is income protection?

Income protection is a ‘tried and tested’ insurance contract offered by most major insurance companies. It will provide you with a defined proportion of your earnings, paid to you if you were off work through accident or sickness, until the earlier of you returning to work or the agreed contract ‘end date.’

Benefit indexation can be selected at the outset to ensure that the policy benefits keep pace with inflation. You could opt for ‘age-costed premiums’ which increase over your working life or guaranteed premiums which remain the same across your working life. If you benefit from some form of sickness pay benefits from work, you can select a deferred period before any income protection benefit commences, making the policy more cost effective. For those on a limited budget, limited benefit policies an be implemented, which would at least cover your income for either up to 12 or 24 months.

What is the expected cost of income protection?

As an example, a healthy 35-year-old female engineer (who engages in light manual work) earning a gross salary of £30,000 per annum, who benefits from 3 months sick pay from work, could cover her income to age 60 for around £33 per month (guaranteed premiums for the term of the plan). This person would receive £1,500 per month (not be subject to income tax based on current tax legislation) if they were off work through accident or sickness

If this same person set the same plan up at age 45, it could cost around £52 per month. This shows the value in implementing cover sooner, rather than later.

In summary

As with any sort of insurance, it’s always best to implement a policy before it’s actually needed. In this case, we would recommend taking out income protection before you experience any health problems to ensure that cover is accepted on normal terms and to ensure that the plan can be as cost effective as possible.

Everyone knows about the importance of life insurance, and hopefully, this article has given you an insight into understanding the merits of protecting your income.

I am afraid that I can’t help you with your pet insurance, however, if you or anyone you know would like to talk about income protection or receive advice on the best route to take, please get in touch with me using the button below.

For more information about anything in the above article, please get in touch using the button below.
James McIntyre
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