Research suggests that one-third of British households have less than £250 of savings and a surprising one-fifth have no savings at all. With recommendations of saving three month’s worth of income in the event of unforeseen circumstances, simply getting by can prove very difficult if you can’t work.
So what can you do to safeguard yourself?
Getting the right insurances in place definitely helps and can prove invaluable, but with money a serious worry for many households, insurances are not always at the forefront of people’s mind.
However, I urge start-ups and self-employed professionals to consider income protection insurance, because it provides a regular tax-free income if you can’t work because of illness or injury.
Here are five reasons why I believe income protection is a good financial safety net:
- It provides an income until you return to work or retire. No matter if you are ill for two weeks or two months, income protection pays out until you recover or retire.
- Claims can be paid straight away. Some polices pay out straight away, so there is no delay in receiving your money, enabling you to keep up with your bills and everyday lifestyle.
- Cover is cheaper than you’d expect. Insurers will provide advice on how much income you’d need and what you can afford.
- There’s no limit to how much you can claim. Even if you are off work on more than one occasion, you can still claim.
- It covers a wide range of illnesses. It’s not always a “serious illness” that leaves you unable to work. Even a case of the flu can damage your working ability.
If you’ve decided income protection is something you need, make sure you do your research before choosing a provider. Take a look at their claim pay out rates (a good provider usually pays more than 90% of claims) and what occupations they cover to make sure your needs will be met. Independent organisations such as Which? also provide free advice, so check out their websites, too.
Financial expert David Thompson is a chartered accountant with 25 years’ experience and is chief executive of dg mutual.