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Do I Need Income Protection Insurance

Ever wonder what the hell insurance even is, and why you might need it, what it does, and what it doesn’t do. I’m going to split this up into three articles so it’s not too overwhelming all at once, but today we’re going to look at why do you need income protection insurance.

This article came out of a desire to assess my own personal circumstances to see what insurances I might want or need, but also out of a desire to leave less money tied up “for a rainy day” so I can put that money to work and hopefully make more money off it in the future.

As a qualified Protection Adviser, I am literally qualified to give advice on what insurance I need, but I can only do that because I know my own circumstances intimately. Reeeeeeeeeeeeeal intimately. Nothing in this article should be seen as giving advice to you, just letting you know what the options are and what they do.

There are a load of different insurances out there, and you really must speak with someone who is qualified to give advice on the subject to figure out what’s best for you, but I’m going to look specifically at;

Let’s answer “Why do I need income protection insurance?” right now!

Income Protection (IP)

What is it?

It’s an insurance policy that pays out if you are unable to work because you’ve been injured, or you get ill (like proper ill, not man flu). It usually pays out for a long ass time, think years, until retirement or until death – but you can change the timeframes involved.

It will pay out a percentage of your current income, anywhere from 50 – 70% is normal. The idea being they want you to have an incentive to get back to work, hence they won’t give you 100% of the income you’re currently receiving.

Why would I need it?

Do you spend money on things each month? If you stopped working, and stopped getting paid, would that become slightly more of a hassle? Then you might benefit from income protection.

IP stops you from having to move back in with your parents, eat beans on toast, sell everything you own, and generally be broke as fuck. At a time when you’ve just been given some fairly shitty news about your health as well.

If other humans rely on you for your ability to bring in money each month, then Income Protection is vital to at least consider. If your job is the main source of income in your household, then the impact of losing that income could be a proper ballache. Income Protection would kick in to provide a decent chunk of your current income so you can keep your life running pretty much how it always has done.

Gimme an example

Without IP: Miss P is self-employed, lives with her partner in rented accommodation, has some savings built up but nothing spectacular, and earns £4k a month.

Something sucky happens and she now can’t work as a freelance glass blower. I’m not a Doctor, maybe she caught something awful that means she can’t blow glass anymore.

The household has lost £4k a month coming in. Her partner tries to pick up the slack but can’t cover all of it. So they live off their savings for a while. They start missing some payments and decide they need to move to a cheaper house.

As there is only one person working they don’t pass credit checks as well anymore, so they end up in a shitty part of town. Out of guilt and stress she decides to get back into some kind of work just to start bringing in some money. But going back to work too soon in a bar ends up causing her to get sicker, which leads to more time off.

A bit depressing, but how long do you think most couples would survive if they suddenly lost half their income?

With IP: Mr S is married with a new kid, works as an accountant and earns £4k a month, lives in a nice house with a mortgage and a decent car on the driveway, and a reasonable amount of savings, maybe even an investment property.

Something equally shitty happens, and now he can’t work either.

Initially he relies on his Statutory Sick Pay and a little bit of savings, and the income from his investment property. Eventually the sick pay stops, and his savings start to run out. But after a few months the IP kicks in (this is known as the deferral period and you can decide how long it is).

He now receives £3k a month from the insurance company. The family decide to trim some costs, so the fancy pants car goes, and they now only holiday once a year instead of twice. But that’s about as bad as it gets for them.

How much does it cost?

Let’s use me as an example human. A mid 30’s chap in fairly good health that doesn’t smoke and who wants an income of around £3,000 per month if he can’t work ever again.

I’ve got some savings, so I’m happy to wait a year before it starts paying out. Plus I’m going to look at Accident Sickness Unemployment to fill the gap between getting ill and getting paid from my IP policy.

A very quick scan of what’s available right now (accurate as of 1st May 2018), the cost of this ranges from £25 per month all the way up to £92 per month.

There is a shit load of stuff that goes into how much you’ll end up paying, way more than I can be arsed going into in this article, but it just goes to show that;

  • It’s not as expensive as you might initially think
  • There is a huge range of products and costs out there, so you probably need to speak to someone who knows what they are doing to get the right one for you

There is also a big difference in what the insurances cover. Is the payment amount fixed, or does it go up by RPI each year? How long do you wait until you start receiving payment? What kind of job do you have? What kind of job must you be unable to perform, just your own or any kind of job? What illnesses are covered? Etc. etc.

Usefulness for me?

I’m going to do a lot more research, but I will most probably be picking up an Income Protection Policy having gone through this exercise.

It’s not mega expensive, and it will give me peace of mind to know if something absolutely shit happens, then I won’t have to worry about how I’ll afford food or a place to stay or the cost of my Amazon Prime addiction.

Is it useful for you? No idea.

But if you are curious, I’m happy to have a chat on a more formal basis.

So What Insurance Do I Need?

I’ve always believed in self-insuring, and the morbid knowledge that if I die, nobody really cares (financially at least). I am single, with no dependents, family that are perfectly capable of looking after themselves, and have more assets than I have liabilities.

Being mid 30’s I’ve also never thought I could get ill or catch anything nasty that would make me unable to work. Plus working as an investor isn’t exactly that hard or time consuming. I’ve always thought I could work around any illness I might get.

So basically, I’m the hardest person in the world to sell insurance to. 

Income Protection Insurance is one that even self-employed people like me would benefit from, and it would massively reduce the burden of having to live off savings if I found myself in a position to not be able to work ever again.

As soon as I get a partner / wife / kids, I’ll be covering myself up to the hilt with IP. Unless she’s some sort of billionaire herself, in which case I’ll be taking out so much life insurance on her! Haha. But as soon as other humans rely on me for my ability to bring in money, I’ll be making sure I can continue to provide that for them. 

And this is my point. Even though I’m qualified and I advise people just like you on protection and insurance products, I’m not the usual hard selling, desperate for the commission asshat that is the stereotype for insurance sales people.

I think insurance, like everything to do with money, is hugely personal and you should do what’s right for you. There’s no one size fits all here. So hopefully this series of articles has explained the options out there, and you’re now in a better position to decide for yourself what you and your family need to put in place.

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