It’s human nature to avoid thinking about the worst.
What would happen if we had to take a long time off work for health reasons? What if an injury left us unable to do our job?
But most of us recognise it’s important to have the financial resilience to cope with anything that could affect our income.
Most people have a rainy-day fund to cover them in an emergency, but this can’t substitute for a permanent income, and can quickly run dry.
One way to protect yourself, and to ensure you have money coming in each month, is with income protection (IP). IP provides a regular monthly payment throughout periods of long-term illness or injury.
But with a range of competing policies, each offering different levels of cover and types of premiums, it can be complicated to find the product most suited to you.
Here Ian Biddle, a Financial Consultant at Wesleyan, specialist financial advice and services to lawyers outlines the five key things you should consider:
- Ensure you’ve got the right level of cover
Any IP policy should provide you with enough cover to guarantee you have a decent income if you’re left unable to work, but the amount of benefit you get each month will be dependent on your policy.
It’s important to consider what monthly income you’d need. If you need your policy to cover the cost of supporting your family or dependants, mortgage repayments or credit card bills, you should factor in all these costs. You should also consider any employee benefits you receive, for example a company car you may not have access to if you are unable to work.
Making sure you get enough to cover all your outgoings means you don’t start to dip into your savings.
- Think about timings
When considering your policy, think about how long you’d need your policy to pay out in a worst-case scenario.
At Wesleyan, we’ve had claims for shorter-term periods of illness – between six and 12 months – all the way up to more than 30 years. While it can be hard to predict exactly what kind of support you might need in the future, it’s something to consider carefully.
- Renewable or guaranteed?
When deciding on a policy, you are likely to be offered a choice between a renewable premium, which can go up or down, or a guaranteed premium, where your monthly cost will remain the same.
While the reviewable premium might look like a cheaper deal, there is always a risk that it may rise over time. Guaranteed policies could end up being cheaper long-term, as the premium will not change unless you alter your policy.
- Cover your occupation
Most IP policies on the market will cover you if you are unable to work, however, some policies will cover you if you are unable to work in your own occupation. This means that if you were unable to practice law, but could seek alternative employment, the policy would still pay out as you can’t perform your chosen career.
- Get financial advice
Selecting the right IP policy can be challenge. To get the best deal for you, speak to a trusted financial adviser who can help shape a policy that suits your needs.