13/06/24Uncertainty drives record numbers to take out income protection. Here’s what you need to know
Figures from the Association of British Insurers (ABI) suggest a record number of families are taking out income protection to create a safety net. Read on to find out how income protection works and whether it could be valuable for you.
Income protection would pay out a regular income if you were unable to work due to an accident or illness. As a result, it could provide you with a way to keep up with your financial commitments if your income unexpectedly stops. Income protection will normally continue to pay an income until you’re able to return to work, retire, or the term ends.
Usually, the sum provided through income protection is a proportion of your regular salary, such as 60%. You’ll need to pay a monthly premium to maintain the cover, the cost of which will depend on a range of factors, such as your age and lifestyle. While you might not want to increase your expenses, income protection could be cheaper than you think, and it may substantially improve your financial resilience.
Economic uncertainty could be driving more people to consider their financial resilience
According to the ABI statistics, a record 247,000 people took out income protection in 2023. The figure is almost four times higher than it was just 10 years ago. Critical illness insurance, which would pay out a lump sum if you were diagnosed with a covered illness, saw a similar rise between 2013 and 2023.
Yvonne Braun, director of policy, long-term savings, health and protection at the ABI, said: “Financial resilience – the ability to withstand a financial shock – is a hugely important issue. It’s encouraging to see that so many people recognise that income protection and critical illness insurance are an important part of financial planning and play a crucial role in providing a financial safety net.”
There are many reasons why you might consider how to improve your financial safety net.
A change in your circumstances can often be a trigger. For example, if you’ve purchased a property or have welcomed children, you may reevaluate your finances and take steps to improve your ability to weather a financial shock.
Wider economic circumstances are also likely to have played a role in the rising number of households choosing to take out income protection.
Over the last few years, the Covid-19 pandemic and subsequent period of high inflation may have led to more families facing unexpected changes to their budget. Indeed, a BBC report suggests 7 million adults felt “heavily burdened” by their finances at the start of 2024.
With many families having to absorb higher essential costs, from energy bills to grocery shopping, it’s perhaps not surprising that more are looking for ways to ensure they can overcome losing their income.
Income protection could safeguard your short- and long-term finances
If taking time off work might place pressure on your finances, it may be worth considering if income protection could be right for you.
It’s not just your income you may want to weigh up either. For example, your partner may be the main income earner in your household while you are responsible for the majority of childcare. In this scenario, you might want to consider how your household’s expenses would change if you were ill – your childcare bill could rise significantly or your partner might be forced to take time off work while you recover.
Income protection could complement your wider financial safety net
While you may already have measures in place to provide a short-term income if you are unable to work, income protection could still be useful.
You may have an emergency fund you can draw on, but how long would it last, and what would happen if you were unable to work for longer than expected? Similarly, your employer might provide enhanced sick pay, but this is often for a defined period, such as six months.
Assessing your financial resilience could help you see how income protection might complement your wider financial plan.
A financial shock could affect your long-term finances too
When you experience a financial shock, your focus is likely to be on the immediate impact it has on your budget. Yet, it could have long-term implications too.
If you’re unable to work you might stop paying into your pension, or cut back how much you’re adding to a savings account. Depending on your circumstances, income protection could allow you to stick to your wider financial plan. It may help you to maintain non-essential outgoings that might be crucial for your long-term goals.
Get in touch to discuss your financial resilience
Taking steps to improve your financial resilience could help you feel more confident about your future and mean you’re in a better position to overcome unexpected shocks. Please contact us to talk about your financial plan and whether income protection or other measures could be right for you.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Note that income protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.