In my previous article, Covering your mortgage against the unexpected, I highlighted the different types of protection insurance and underscored the importance of each type of cover.
Now I’m going to take a deep dive into one of these types of insurance – income protection to help you decide if it’s right for you.
During a time of escalating living costs and economic uncertainty, protecting your financial stability has never been more important.
As we’ve discussed, the relentless squeeze on salaries, coupled with the recent surge in mortgage rates, has left many of us feeling the pinch.
Now, more than ever, it’s important to conduct regular financial check-ups, scrutinising our bills and expenses to ensure they align with our financial reality.
However, amidst this financial juggling act, there’s one aspect that often goes overlooked – income protection.
When unforeseen circumstances, such as illness or injury, leave us unable to work, the consequences can be dire. While some employers offer limited sick pay, it rarely extends beyond a year. For the self-employed, the absence of sick pay exacerbates the financial vulnerability.
What exactly is income protection?
Put simply, it’s a safety net—a long-term insurance policy designed to provide a regular income in the event of illness or disability.
Whether short-term coverage spanning 12 to 24 months or more comprehensive plans extending until retirement age, income protection ensures financial stability until you’re fit to return to work or retire.
What are the ‘pros’ of income protection
Financial Security
It provides a steady income during periods of illness or disability, ensuring essential expenses like mortgage or rent are covered.
Flexibility
You can tailor your coverage to keep pace with inflation, maintaining the purchasing power of your payout over time.
Peace of Mind
It offers reassurance and stability during times of crisis, allowing you to focus on recovery without worrying about income loss.
What to watch out for with income protection
Cost
Premiums can be high, especially for individuals with certain risk factors such as age, occupation, or health history.
Partial income replacement
Benefits typically cover only a portion of your pre-illness income, requiring additional financial planning to bridge any gaps.
Complexity
Navigating the nuances of benefit structures and policy features may be daunting without expert guidance.
Who benefits most from income protection?
Primary breadwinners, self-employed individuals without employer-provided sick pay, and those with high financial commitments stand to gain the most from using income protection.
For these people, income protection provides essential support during times of crisis, ensuring that household expenses are covered even when unable to work.
How to find out more
Seeking advice from a financial adviser well-versed in the complexities of income protection can make all the difference.
With their guidance, you can navigate the different options, ensuring you find a policy that meets your needs and secures your financial future.
In a world of uncertainty, income protection offers more than just financial security; it provides peace of mind.
While none of us like to dwell on worst-case scenarios, preparing for them is an important financial strategy.
After all, when it comes to financial well-being, there’s no time like the present to protect what matters most.
Darren Polson is head of mortgage operations at Aberdein Considine
