A new study has revealed that 42% of UK respondents have experienced income loss in their working lives due to serious illness – yet just one in five Brits have income insurance protection to provide a financial safety net should they become too ill to work.
The survey – which was carried out by Zurich Insurance across four continents – also highlighted that not only is there a worrying gap in income protection, but a lack of knowledge of protection options.
Just 19% of respondents claim to have a good understanding of income protection products, which suggests that more needs to be done to raise awareness of the product's benefits.
Will your savings be enough?
In the absence of cover, just under half of respondents (47%) said they would rely on their savings should the worst happen. Worryingly though:
- just under a quarter (23%) of respondents also report having savings to last them just one month in such a scenario
- 21% say they have enough to last them up to three months.
Even if you have money saved, how long would the savings last?
Figures from the Association of British Insurers (ABI) show that in 2015, the average individual income protection (IP) policy paid out for 214 weeks (more than 4 years) and was worth £40,000.
In the worse case scenario, would you have that sort of money behind you?
What about state benefits?
Should something prevent you from working, there may be some government applied benefits you could be eligible to claim. Your eligibility, however, will depend on a number of things, such as whether you have any savings; whether you have a working partner; how much your mortgage / rent costs are; etc.
Even if you were eligible to claim some form of benefit, the amount you could receive may be less than £100 a week.
- For example, if you cannot work, a single person may typically receive between £57.90 - £73.10 (for both contributory ESA and income-related ESA).
- And if you qualify for the Government funded Support Mortgage Interest, you’ll have to wait nearly 9 months before you get your first payment.
Also, the UK welfare system faces cutbacks with the expansion of the Government's Work Capability Assessment programme to review the eligibility of a further 1.5m Brits already receiving Incapacity Benefit - which could further affect what you may receive.
Would you be able to eke out your savings in either of these scenarios in order to cover any financial shortfall? If the answer is ‘no’, then you do have options.
In fact, that is why income protection exists, to give you a financial safety net in the event of accident, sickness or involuntary unemployment.
So, what does income protection insurance do?
Also known as redundancy cover, unemployment insurance, or accident and sickness (ASU) insurance, income protection insurance is designed to keep you financially afloat in the event that you become unable to work due to illness, accident, or involuntary redundancy.
While different types of income protection exist (you can read about the different types of IP here), typically the cover pays out a set amount of money on a monthly basis (typically up to 70% of your gross monthly income but this depends on the product provider) helping you keep up with mortgage or rent payments, bills and other regular outgoings until you get back to work.
How much does it cost?
In the same survey, over a quarter of respondents said they would be willing to spend 5% of their income on IP insurance. The good news is that the cover can be bought for significantly less, so, really, it’s a no brainer. Why not compare income protection plans now via our service and see how much getting peace of mind can be?