How would you pay the bills if you were sick, injured or couldn’t work?
Income protection is a financial safety net which pays you a tax-free monthly income should you be unable to work for an extended period-of-time because of a serious illness, or an accidental injury. Why is Income Protection a good idea?
Statutory sick pay
There is limited government support and by law your employer must pay most employees statutory sick pay only up to 28 weeks. This will almost certainly be at a rate less than full earnings. After this period-of-time you may have to rely on state benefits.
If you are self-employed, then no work means no income. Self-employed people can take out individual policies (not business versions). There are considerations relating to pre-tax earnings vs profit in the 12 months prior to incapacity. Your qualified Sandringham adviser will be able to help you understand this.
Choosing the right cover
When you take out Income Protection you usually have the choice of:
Benefit payment period – you can choose a short term 1, 2, 3 or 5 years. Alternatively, an income claim could be paid right up to your retirement age if you are unable to work for a long period.
Level Cover – when you make a claim the amount of tax-fee monthly income you receive will be fixed for the duration of the payments.
Inflation-linked Cover – Because inflation tends to rise, this cover increases in line with the Retail Prices Index (RPI).
Guaranteed Premiums – the monthly premiums are fixed for the duration of the plan. If you choose Inflation-linked Cover the premiums will automatically rise each year in line with inflation.
Renewable Premiums – as your career circumstances change you may decide to either increase or decrease the amount of cover you require – although typically not for the first 5 years.
When you make a claim, the period-of-time you have to wait before receiving your first tax-fee monthly sum depends on your choice of waiting period – usually a choice between 1, 2, 3, 6, 12 or 24 months. The longer the waiting period, the lower your premiums will be.
There are other ways to protect those you care about from financial hardship. Life Assurance – policies that pay out a tax-free lump sum or an income when you die. Critical Illness Cover pays out a tax-free lump sum should you be diagnosed with a life-threatening illness.
Knowledge and expertise
Waiting periods, indexation options, guaranteed premiums – sounds complex doesn’t it? A Sandringham adviser will be able to help you understand the options and find you the best plan to suit your needs – and your pocket.