No one plans to fall ill or sustain an injury at any point in life, that's why having income protection is so important; to plan for the unexpected.
Regardless of whether you are a mum in a high-risk job or you work in the corporate world, having your income protected is important whatever your occupation may be.
According to insurer The Exeter, research shows only 17% of the UK have income protection, leaving the majority of households in financial risk.
For many parents here in the UK the current cost of living crisis means money is tight and therefore affording financial protection such as income protection or life insurance may seem unaffordable. However, below are some expert tips to help minimise your monthly premiums.
It can also be difficult to know what factors to consider when it comes to securing a policy, that's why life insurance broker, Reassured Advice, have listed the best 5 things to consider before securing insurance protection...
- What your gross income is
To start with, you should find out how much your gross income currently is. When making a claim with income protection, you will typically receive around 50% to 70% of your regular income, depending on your insurer and policy.
Example benefit amounts:
| AIG | Up to 60% |
| Holloway Friendly | Up to 65% |
| Aviva | Up to 65% |
| Legal & General | Up to 60% |
The good news is that payments from income protection policies are tax free, meaning there will be no cuts into your pay out.
Due to lack of benefits available and no sick pay for those who are self-employed, income protection can be very beneficial and pay out a lot more than any other alternatives (such as ESA).
Typically, your pay out is based on your earnings, however it can also depend on other personal factors such as any dividends or state benefits received.
2. Personal factors can affect your premiums
Some personal factors could affect the cost you pay. For example, here is a list of factors that could influence premium costs:
- Smoking status
- Age
- Your physical health/ medical history
- Your mental wellbeing
- Current occupation (if it is high risk)
Insurers tend to inflate your premium costs if you are more likely to make a claim. So, if you have a pre-existing medical condition or work from heights/with dangerous machinery, this could affect the price you pay.
The severity of any high-risk factors could also impact whether you are able to secure an affordable policy or one at all. However, if this is the case, not all hope is lost. There are professional teams that can help you if your application is slightly more complex or if you are worried about being declined, as well as specialist insurers.
By quitting smoking and leading a healthy lifestyle, you could reduce these costs.
3. If you have any savings
When planning ahead to make sure you are financially protected in the future in the event of an accident or illness, it is important to consider the deferral period that will be included in your policy.
This is the time between when you stop working and when you start receiving your benefit, which, depending on the insurer, could last at least a few weeks.
Therefore, it is important to make sure you have those emergency savings for a time of need to keep you on your feet until your claim starts to pay out.
Saving can be difficult for many, especially if you have numerous outgoings, but you should aim to have enough to be covered in this period. This will depend on what costs you need to cover for your day-to-day life.
If saving isn't possible you may wish to opt for the shortest deferred period possible, this can minimise any financial struggle.
4. Considering what costs to cover
Income protection can help replace an income while you are injured or unwell, it can help with things such as:
- Mortgage and bill payments
- Transport
- Electricity and gas bills
- Childcare and education costs
- Food shops and daily living
- Loans and debt payments
According to 2022 outsourced research, the average cost of living in a UK household is £3,073 per month.
Whilst you don't get your full wage, you could get up to 70% of your monthly income (tax free). This could still be a sufficient to get by opposed to sick pay provided by your employer (if you qualify – it is important to check if you have sick pay and what your entitlement is) which is usually £109.40 per week - Statutory Sick Pay (SSP).
5. Calculate how much income protection you need
There are a variety of methods you can use to work out how much income protection you will need, but we believe a quick and simple way is by using a calculator.
Many insurance companies and life insurance brokers (like Reassured Advice or Drewberry) now offer income protection insurance calculator tools online where you can input your monthly expenses to produce a total estimate.
This can be one of the best ways to establish how much income protection you need as all your finances are presented in one place, including factors that you may not have considered (length of mortgage or even perhaps childcare costs).
Circumstances can change but the younger you are, typically, the cheaper the policy can be, so it is important to find cover for yourself sooner rather than later.
Life insurance brokers can also help you compare quotes from a variety of insurers to help you find a great deal on a policy.
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