Income protection puts a floor under your standard of living – Birmingham Post article 20.05.2021

Car insurance is compulsory, most sensible people insure their home and contents, pets can prove expensive if veterinary help is required so insuring them is a good idea, but, according to Legal & General (L&G), only one in ten of us protect our income against illness or injury.

Worryingly, the average employee has enough savings to last just 24 days if their earnings stopped, while 46 per cent of households have either no savings or less than £1,500.

Some are content to live for today, piling up loan and credit card debt. Others are out and out optimists, confident something will turn up to keep the wolf from the door. Then there are those who reckon that should the worst happen they could either fall back on the state or opt to go bankrupt – both very bad ideas if you want to have any sort of acceptable standard of living.

Employed workers get less than a £100 a week statutory sick pay for 28 weeks; self-employed workers are paid zero yet there are more than five million of them, up from 3.2 million in 2000, 15 per cent of the economy.

Now, be honest, if you had to, what would you cut from the following typical commitments – mortgage or rent; council tax; utilities; broadband; mobile phone; TV/entertainment package; gym; food; credit cards; holidays and meals out; clothes; loans; TV licence; car insurance, tax and maintenance; other insurances.

Insurances are often one of the first to go even though they should probably be one of the last. Holidays and meals out instantly jettisoned. Clothes can be made to last longer or you could turn to charity shops. Bin the gym membership in favour of running round the local park. You could drop the TV/entertainment package – what does The Crown or Line of Duty really add to your life? Hope the powers-that-be don’t discover you haven’t renewed the TV licence. Suspend the mortgage, council tax, utilities, credit card, car and loan payments … at least until the bailiffs are sent in to repossess all your worldly goods. Fido and Tiddles find themselves back at the rescue centre where you first fell in love with them – the children are in floods of tears. Time to present yourself at the nearest food bank in a desperate bid to put the basics on the table.

Maybe I exaggerate somewhat. Nevertheless, it doesn’t sound much fun.

And all because you didn’t bother to take out income protection insurance.

It is an irony that many people never sit down and work out where their money goes.

For example, L&G estimates that £585.60 is the weekly spend to run a family home, £159.60 on housing and transport is the biggest hit, while £76.90 is earmarked for holidays, TV and streaming, sports, and pets.

Not surprising then that many have a theoretical surplus of income over expenditure, but very small savings.

Income protection insurance – either you take out a policy yourself or participate via your employer’s group plan – covers you if you are unable to work due to illness or injury. It does not apply if you are made redundant.

You or your employer will pay a set monthly premium.

Benefits start after a pre-agreed waiting period has elapsed.

Factors that affect the amount you are charged include the type of job, your age, the percentage of income you want covered, your health, and when you want your policy to end.

So, understand where you are now and what would happen if you couldn’t work. That gives you the information you need to make an informed choice about protection.