How to protect what’s important

When money is tight, insurance can be a valuable tool to protect yourself and your loved ones in the face of an emergency

While you are well and able to work, covering the everyday costs of living may not cause you too many worries. But your situation can change dramatically if you fall ill or have an accident and are unable to work for a long period of time.

You may be entitled to some state benefits in these circumstances and, if you are employed, your employer may provide a sick pay scheme that replaces part of your regular salary for a while. But if you are unable to return to work before the sick pay scheme ends, or if you are self-employed, you could suffer a sharp drop in income. This could make it difficult to pay your mortgage, utility bills, food and all the other expenses that help to keep you and/or your family safe and happy.

We all know we are meant to save up a ‘safety net’ to use in times of emergency, but saving can be easier said than done when money is tight. This is where income protection insurance can help, which is designed to provide you with income if you are unable to work because of illness, accident or injury.

Income protection insurance is flexible and can be tailored to meet your needs. You can choose how soon payments should start after you fall ill or have an accident. Most policies will pay out after just four weeks, but the longer you defer payments, the less the policy will cost. Common waiting or ‘deferred’ periods are four, 13, 26 and 52 weeks.

Debbie Kennedy, Group Head of Protection Proposition Strategy for Royal London, says it is sensible to check what sick pay your employer might offer: “If you know when the sick pay scheme will end, you could arrange for payments from your income protection insurance to start then.”

You can also choose how long the policy should pay out for. The most comprehensive policies will continue paying out until you are able to return to your normal work, you reach retirement age or die. But if the cost of the policy is an issue, and you wish to reduce the premiums, you can make it much cheaper by arranging to have payments stop after a set period of time, such as two years.

Other things you should consider are:

Some income protection policies pay out until you can return to any type of work, rather than your specific role. This means, for example, that if your occupation is a physically demanding one such as nursing, your policy could stop paying out before you are ready to resume your normal work, just because you are able to carry out a less active desk job.

“These issues can be complicated, so anyone considering buying income protection insurance might want to ask an independent financial adviser for help in choosing which policy is right for them,” Debbie concludes.

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