Typically, protection insurance has three elements, life cover, critical illness cover and income protection; most experts would prioritise basic life cover first, but are less clear on the next priority to cover.
Thinking about it, your biggest asset is the ability to work and earn money; if you cannot work, then it is highly unlikely that any long-term financial plans will be achievable. If you have not yet climbed on the property ladder, then income protection is even more important as not being able to pay the rent will result in homelessness, or needing to move in with family, in a relatively short period.
Currently, Statutory Sick Pay is £94.25 per week, for no more than 28 weeks, and not many employers will offer much more than this, so any sustained sickness is likely to be ruinous for the household finances.
According to the Association of British Insurers, (ABI), in 2017 around 1 million people found themselves unable to work due to serious illness or injury. Income protection is medically underwritten before your cover starts and will pay out when you cannot work and are signed off by your doctor. The better plans will pay out until you return to work (however long that may take), retire or die. Budget plans will often only offer 12 or 24 months cover over a complete working life, but with significantly lower monthly premiums.
I must draw your attention to a superficially similar product; Accident, Sickness and Unemployment Cover (ASU), which will pay out on a sickness diagnosis. However, they will have a limited claims period, usually 12 or 24 months and will not be renewable, nor are they medically underwritten when you take them out so there is a ‘grey area’ over whether it will pay-out. The distinction here is that Income Protection is a “permanent” policy and is cancellable by the policyholder or by non-payment of premiums, not just by getting ill! Temporary plans will not renew if you make a claim.
All of these plans will be fully underwritten, so the cost will be dependent on your state of health, age and occupation, if you are refused cover you may have to explore critical illness plans or saving more cash to tide you over in the event of serious illness.
So, some bullet points for protection plans:
Illness or injury can strike at any time; you do not get to choose!
You must buy protection insurance before the claim event.
If you are young and healthy, it is cheap.
Once you are older or have issues, it will become expensive or unobtainable.
Get cover tailored to your circumstances; one size fits all is not an efficient solution.
Genetic screening is not commonplace in protection insurance; cover criteria is likely to get tighter over time.
Although there is the Welfare State, the provision is patchy and it is a sticking plaster, not a personalised care solution.
Most employers will sympathise, but infinite sick pay and a job for life is not a legal requirement.
High stress levels do not usually lead to good outcomes; making yourself financially secure will assist with recovery in the long term.
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The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.