In a world where everyone is worried about the safety of their jobs and their next pay packet, there’s never been a more poignant time to talk about protecting your income. However, pandemic or no pandemic, none of us are invincible and any number of things could render us out of work unexpectedly.
When you become a parent, the world changes and you feel the weight of responsibility for the new bundle of joy in your life. You want to protect them in every way possible. What better way to protect them by having some sort of life insurance in place, so you can still provide for them when the chips are down?
If you’re considering life insurance, it’s worth looking into term life insurance sooner rather than later because the cost of coverage rises with your age. This type of insurance will pay out a tax-free lump sum to your family should something happen to you.
State Sick Leave
First off, it’s worth finding out if you are entitled to any paid sick leave depending on where you live. So, what are paid sick leave laws? In the UK by law, employers are required to paid Statutory Sick Pay to employees who are eligible for up to 28 weeks. In the US there is no federal requirement for employers to provide paid sick leave. However, this has changed over the last few years and more and more companies offer some kind of paid sick leave.
If you have a pension, it’s worth checking to see if you have been mis-sold. A study found that less than half of final salary transfers were actually suitable and that over a thousand firms were under investigation for mis-advising customers. You could be entitled to claim for compensation if you think you have been mis sold final salary pension transfer, so it’s definitely worth checking.
If you become sick or injured, income protection will enable you to pay your bills and provide for you and your loved ones whilst you’re out of work. It quite literally protects your income at a time that can be financially devastating – especially if you’re the main breadwinner in your household with little ones to feed and clothe.
Is income protection expensive?
That depends on a few things; your age, your line of work, your hobbies, your current health and medical history, and the level of coverage that you’d like. It’s generally cheaper to take out income protection whilst you’re young and healthy, rather than waiting until later in life when you’re more likely to develop medical issues. As with any insurance, the lower risk you are, the cheaper your premiums. It might seem like the last thing you want to spend money on when you have a young family, but isn’t it always worth investing in protecting the lives you love?
Income protection will usually provide between 50-70% of your salary until one of three things happen; you recover and go back to work, you reach state pension age and retire, or you pass away during the period of the claim. When taking out a policy, you’ll also need to decide on a ‘deferral period’ which is how long it’ll take between you making the claim and beginning to receive your payout. The longer your deferral period is, the cheaper your premiums will be.
What if I’m self-employed?
As many of you reading this may be self-employed, you might be asking yourself this very question. Arguably, if you’re self-employed then you probably need income protection more than anyone – no sick pay, no maternity leave and possibly no pension. Without that safety net, you’d have to pin your hopes on qualifying for Employment and Support Allowance, which is financial support from the government if you’re unable to work due to illness or disability. Although that option is available, you’ll be provided with much more money if you claim on an income protection policy.
When you’re self-employed, income protection should be factored in as part of your business plan so that you and your family can still get by without your income. When you’re self-employed and taking out an income protection policy, your monthly income is based on your share of the pre-tax profits generated by your business. The amount of cover that you’ll need will depend on the size of your mortgage and whether you have taken out any loans to build up the business. Even if you have some difficulty proving your income, there are plenty of options available to you.
As much as building up your income is important, it’s equally as vital to consider what you’ll do if you lose it. Don’t leave it up to chance – but then it could be too late. Personal finances are never something to take for granted and income protection is there to make things a little less scary.