Most people have heard of life insurance (pays out on death). This can help provide a much needed lump sum to your family when you die, which could pay off your outstanding mortgage or help maintain your loved ones’ lifestyles.
What many people don’t consider is the impact that an injury or long term illness could have. Sick pay tends to be limited and Statutory Sick Pay (SSP) is just £96.35 per week. SSP is only available for a limited period of time (28 weeks) and if you are not an employee you will not be entitled even to this benefit. You might be able to claim some State Benefits, but these are unlikely to provide a significant benefit to you.
We recommend that you hold an emergency fund of 3-6 months’ worth of core spending. However if you were unable to work for a longer period of time this would run out.
Income protection will pay a tax free monthly amount if you are unable to carry out your job due to illness or injury. You can normally protect up to 50% of your normal earnings and the payments will start after an initial deferral period (such as 3 months from the start of the illness).
The most comprehensive plans start paying if you are unable to carry out your current job, but less expensive plans might only pay out if you are unable to work at all. The plans will keep paying out until you are able to return to work, die, or come to the end of the policy (most people set these up to run until their State Pension Age).
The latest figures from the Association of British Insurers (ABI) show that the insurance industry paid out £6.2 billion in life insurance, income protection, and critical illness claims in 2020, the equivalent of £17 million a day, the highest combined figure on record and up 8% on 2019.