Income protection - just the job

Income protection can play a vital role in financial planning. For example, could you continue to pay the bills, your mortgage or even pay for food if you were unable to work? How would this affect you and your family? Do you have a plan B or to be topical, a backstop?

Income protection is designed to provide you with financial security and peace of mind if you find yourself unable to work due to an accident or illness. Savings or even benefits may help tide you over until you get back on your feet, however, the reality is that many people just don’t have enough savings or entitlement to sufficient state support to bridge this gap. The self-employed are particularly vulnerable in this scenario.

How does it work?

Income protection can replace a proportion of your income if you are unable to work, with short and long term policies available. This is not the same as critical illness cover, which pays out a lump sum on diagnosis of a terminal or critical condition defined in the policy, but this can also be an invaluable safety net for you and your family.

Income protection pays out a monthly tax-free amount, typically between 50%-60% of your gross earned income. Also, if you run your own business, for example, with your spouse, and you are dependent on your spouse’s income as well as your own, you can add your spouse’s income to yours when selecting the level of cover required. In this instance, you could consider using an Executive Income Protection Plan. This would attract corporation tax relief but any benefit paid would then be taxed at the beneficiary’s marginal rate of income tax.

In the event of a successful claim, there may be a deferred period prior to it being paid. This can be from one month up to one year so it is essential to have financial security consistent with your ability to service your living costs before the cover begins.

Income protection can be a lifeline, so receiving the correct advice is essential in ensuring it reflects your own individual needs. As with other forms of insurance, the cost of policies can differ greatly depending on a number of factors, such as your age, general health, whether you smoke and your occupation.

So ask yourself, can you afford to live without your income?

Your Dentons Wealth adviser can assist you in finding the most appropriate cover to meet your own particular circumstance.