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Protecting Income Against Ill Health

Protecting your earnings against being unable to work because of ill-health or injury should be a high priority for almost anyone of working age. There were 2.4 million people receiving incapacity benefits in 2002, according to a government report – Pathways to Work – and of these one million had been off work for over five years. In fact, the chances of being unable to work for a period of at least six months because of illness or injury during one’s working life are one in five for women and one in six for men, according to research produced in 2007 by Munich Re.

You may vaguely think that the state would look after you if you were so ill or disabled that you could not work. And you would be right that the welfare state does provide a number of benefits depending on your circumstances. To give you an idea of the level of payments made, one of the core benefits after the first year of incapacity (when the rates are lower) is currently £81.35 a week. To this may be added other benefits, but you might find it a real struggle to live on state benefits alone.

A fortunate few enjoy protection against the financial consequences of ill health through their employers. But if you think you are in this position, make sure you check it out. Many people think their employers have a scheme that means they will continue to pay their sick employees’ salaries until they retire. But when they look at the detail, they usually discover that their employer has simply undertaken to pay their salary for six months or so.

You may also think you have adequate cover that you took out with your mortgage. Again, this needs to be looked into carefully. Many policies taken out with mortgages pay out if you are ill for a maximum of one year – which may be fine if you are only ill for up to 12 months, but it does not cover the very real chance of long term disability.

By contrast, with an income protection policy you can receive a tax-free income of up to around half your earnings if you cannot work because of long-term health problems. The premiums may be less than you think, especially if you can choose a policy that only starts paying out after six months from the date of the incapacity and if you are relatively young, healthy and do not work in an office or similar occupation.

You do not have to be at work for income protection to be a very necessary form of insurance cover. According to Legal & General’s 2006 ‘Value of a Mum’ survey, replacing a mother’s work around the home is likely to cost almost £24,500 a year. In many cases, the cost of hiring a nanny and other forms of home help if a non-working partner falls seriously ill could easily exceed this figure.

We can take a hard look at the small print of any policies to choose the most appropriate for you – the terms of these plans vary, so it makes sense to buy this type of cover with the assistance of professional advice.

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Daly Harvey Morfitt. 8 Shottery Brook Office Park, Timothy's Bridge Road, Stratford-upon-Avon, CV37 9NR. Tel: 01789 299655 Fax: 01789 264685