Why you need Income Protection Insurance

When you feel secure in your job and are in good health, it's all too easy to overlook the need to plan for the unexpected. However, if you were to suddenly lose your income, you'd certainly wish you'd thought ahead.

Have you worked out how long you could cover your outgoings if you lost your job, fell seriously ill, or had an accident that stops you from working?

If you're self-employed, how would you be able to cover the cost of living?

It's no use just hoping for the best. We all stand a chance of facing these sorts of setbacks during our working lives ...

Did you know?

• Every two minutes someone is diagnosed with cancer in the UK. (CancerStats Key Facts – Cancer Research UK July 2010)
• More than 1 in 3 people will develop some form of cancer during their lifetime. (CancerStats Key Facts – Cancer Research UK July 2010)
• Heart and circulatory disease is the UK’s single biggest killer, over one in three people die from it. Every six minutes someone dies from a heart attack. (www.bhf.org.uk)
• TNS Omnibus found that 32% of people made redundant would fail to meet their current living expenses in the first month, with one in six defaulting immediately. Less than half (43%) of working adults questioned had sufficient funds in place to survive more than three months. (Credit Action Debt Facts & Figures – February 2010)

How long could you manage without Income Protection?

Very few of us have the financial resources to cover the cost of living for long if we lose our main source of income. So ask yourself:

• How long would my savings last if I was out of work?
• If I lost my job, what redundancy package would I receive?
• If you're self-employed, do you realise how limited the support is from the State?
• If you're a homeowner, how long before your home could be repossessed?

No one likes to think about these unfortunate realities. But if thinking about them now helps you to make provision, you'll be glad you did if the worst happens.

Social Security benefits - the uncomfortable truth!

"How will we pay the mortgage?" is often the major worry when the household income is under threat. But you can avoid having your family home repossessed by making plans now.

Many people think the State will provide immediate cover for their mortgage repayments if they are in financial difficulty. Not so!

• You'll receive no assistance with mortgage repayments for the first 3 months of unemployment
• You'll receive no assistance towards the portion of your mortgage that exceeds £200,000
• You'll receive no assistance at all if your partner works more than 24 hours a week
• You'll be 'means tested', with no assistance at all if your savings exceed £16,000
• There is some limited financial help through the State Benefit System (Income Support for Mortgage Interest - ISMI) but it only applies to mortgage interest, not capital repayments, or other mortgage related out-goings such as insurance premiums
• ISMI is only paid at the Standard Interest Rate, which may not match the your mortgage lender is charging
• You'll receive no benefit at all if your National Insurance contributions aren't up-to-date
• Self-employed people can only claim state benefits if they have 'employee' status (i.e. if they're trading as a limited liability company OR as a long term contractor on the client's payroll)

Could you and your family survive on this?

Unemployment - more bad news

• 381 people everyday of the year will be declared insolvent or bankrupt. This is equivalent to 1 person every 52 seconds during the working day. (Credit Action Debt Facts & Figures – September 2010)
• 152,000 people (1,666 a day) reported they had become redundant between April and June 2010. (Credit Action Debt Facts & Figures – September 2010)
• The number of unemployed people was 2.46 million in the three months to June 2010. (Office for National Statistics – Labour Market Statistics August 2010)
• The average length of a claim for Unemployment is 168 days (ABI - September 2009 (most up to date))

helpucover Income Protection benefits:

• Monthly benefits of up to £1,500 or 50% of gross monthly income, whichever is less.
• Benefits paid for up to 6 or 12 months
• Award Winning Claims Service
• Back to Work Service
• Typical monthly premium for £700 monthly benefit is £30.45*
• Cost per £100 of cover is £4.35*

* Based on Accident, Sickness & Unemployment cover for someone aged 35, non-smoker, Back to day 1 cover, 12 month benefit.

There are other providers of Short Term Income Protection and other products designed to protect you against loss of income. For impartial information about insurance, please visit the website at www.moneyadviceservice.org.uk