Have you been seeing and hearing about ‘Income protection insurance’ a lot lately? That could be because income protection is currently a hot topic when it comes to financial stability.
A report released in 2023 put the number of UK citizens purchasing income protection insurance policies at a record high. As economic conditions continue to slide, more people are seeking to protect their financial stability from conditions that could pose potential threats to their livelihoods. Sickness and accidents can occur at any given time. Income protection is a great way to bring about financial support in times of need. This article looks at some of the benefits income protection brings and why more and more people are choosing to get onboard.
What is Income Protection Insurance?
Income protection insurance is a financial safety policy that replaces your income if you are unable to work because of illness or an injury. Unlike other forms of insurance, the pay out is long term with regular payments. Payouts will last until you are able to resume work, retire, or reach the end of the policy term.
The payout is usually 50%-70% of your income and can be utilised for any of your purchasing needs. Some policies offer added benefits such as hospitalisation fees, return to work payments if your income has been temporarily reduced (due to illness/injury), stoppage of the payment of premiums while you’re making a claim, etc
Why is income protection on an upward trend?
The economic landscape in the UK has been marked by uncertainty in recent years. Fluctuating job markets and the potential for sudden loss of income, are causing many to turn to income protection insurance for stability.
Due to these unstable economic conditions, many are acutely aware of the need for long term financial planning. Due to the fact that income protection offers long term payouts, it is recognised for its robust payout value and the ability to meet financial goals of policy holders.
What makes income protection worth it in 2024?
- Financial security to cope with the high cost of living
- With high inflation setting in globally, many individuals and communities are struggling to make ends meet in the wake of the high cost of living. It is becoming less likely that savings will suffice to meet and maintain your lifestyle in the event of losing your job.
On an average, most people in the UK save enough to cover 3 months of living expenses. For some though, this period could be even less. In the event of a sudden illness or injury, you are never certain how long you will be rendered unable to work. This makes income protection a perfect safety net for many, especially those without substantial savings to help them get through times of crisis.
- Supporting as sick pay for self-employed workers:
- An estimate of above four million people are self-employed in the UK as of April 2024. Self-employed workers do not have traditional employment benefits such as sick pay to fall back on, and would have to rely on their own savings. Income protection offers financial security for this segment of self employed workers during difficult times.
You may have to keep in mind that payouts are calculated based on your profits before taxes.
- Helping to maintain financial stability:
- If you haven’t got enough income to support you during times of difficulty, you may have to turn your savings or liquidate investments. Income protection insurance takes this stress off your shoulders. The assurance income protection provides, not only sets your mind at peace, but also is a form of investment for the future.
- Having an income protection policy also cuts down the effort of collecting for a large emergency fund. With income protection there to support, you can divert your savings towards other investments.
- Covers for inability to work caused due to mental health issues:
- The number of rising mental health issues in the UK has been recognized along with the impact it has on employment. In March 2024, data from the department of work and pensions revealed that 20,000 people are unable to work due to mental illness. Recognizing this as a very real potential problem, some income protection policies now provide support for those who may need to take time off work due to depression or anxiety. However keep in mind that a claim can only be made if your condition aligns with your insurer’s terms.
Conclusion
In today’s uncertain times, income protection acts as a great way of protecting you and your family against fluctuating situations in life. Its key benefits of long term financial security, minimising worry, and the ability to unlock funds during times of need, have made income protection a popular and worthy policy to have in your financial plan. Recognizing the benefits of financial security in case of illness or injury, many UK residents are increasingly turning to income protection insurance as a popular and wise choice.
* Approved by The Openwork Partnership on 15 Aug 2024
