Income: Protecting your most valuable asset

I think we can all undoubtedly agree that our Income is incredibly important. It pays for our homes, daily expenses, maintains our lifestyle, builds investment for the future, and a secure financial foundation.

Yet so many of us don’t consider protecting it.

Think for a moment – how would you pay for everything if you were to suddenly lose your income?  Consider your lifestyle now and all that your income covers: the mortgage, bills, groceries, clothes, socialising, travel, your car. If you have a family, it might cover schooling, after school clubs, childcare, family holidays, birthdays and Christmas. Even if you have some savings to fall back on, you will soon find they don’t last very long.

If you are employed, you might assume your employer will continue to give you some level of income if you have to stop work for a period. In reality, however, employees are usually moved onto Statutory Sick Pay within six months, which is £109.40 per week.  It’s not very much, so consider what you would have to give up to live within your means?  Would you want your lifestyle to change drastically for your whole family whilst dealing with the situation at hand?

An Income protection plan is a long-term insurance policy that makes sure you get a regular income until you retire or are able to return to work should something happen which stops you from being able to work. It can really help during an uncertain or worrying time, ensuring you can meet your financial obligations and maintain your lifestyle.

Life has been far from predictable over the last few years but outside of world events – there are other, unpredictable events such as illness, disability, or unexpected accidents which can happen at any time and significantly impact your financial situation.

One of our clients Mike is 32 and works at his local bank. He’s worked there for 15 years and has extensive benefits, such as final salary pension and six months full / six months half pay.

Mike’s wife Sue, had just started maternity leave with their second baby the week before the Covid lockdown began. Due to the lockdown measures, Mike began working from home, which was a benefit to them both with a new-born baby and a two year old to take care of.

One morning, Mike bent over the cot to pick up their baby and his back seized up.

So much so, that he couldn’t pick up his baby and collapsed onto the floor.

He was rushed into hospital and had to have emergency surgery on his spine to fix three slipped discs.

He had to go back to hospital twice over the course of the following two years, for further surgery to provide more permanent support to his back.

Because Mike had six months full pay, he knew they could manage the bills and other outgoings to begin with, but they would have to cut back when they went down to half pay after six months. Mike knew he had an Income Protection plan so called us right away to follow up on the advice we had given them. His advisor let him know he could put in a claim, which was processed and Mike then received the equivalent of 65% of his total income tax free for a further two years whilst he was recuperating.

In Mike’s own words – “if it wasn’t for the income protection cover, we would have lost the house – all I did was go to pick the baby up and look what happened!  I always thought income protection was for self-employed people with heart attacks and cancer, not for someone like me with a bad back! We both cannot thank you enough”.

This case highlights the importance and usefulness of income protection. It can be a lifeline for individuals and families facing unexpected health issues or injuries, offering financial security and peace of mind during a challenging time.

 Here are some further benefits of Income Protection:

• Income protection provides a safety net, assuring you can maintain a stable financial situation even during challenging times.
• It brings peace of mind – knowing that your financial needs are taken care of allows individuals like Mike, in our example, to focus on their recovery and well-being without the added stress of financial uncertainty.
• Income protection policies can be tailored to suit your specific needs, including the duration you will receive a pay-out, deferred periods, and additional benefits like inflation protection.
• In cases where an individual’s condition is more severe and long-lasting, income protection can offer continued support for an extended period, ensuring financial stability during prolonged illnesses or disabilities.

Given the unpredictability of life, it’s never too early to start planning for income protection. With some simple planning and budgeting, you can start to build a secure financial foundation that can protect you against unexpected events, providing a safety net that safeguards your financial well-being and that of your loved ones.

Our advisors would be happy to take their time to talk to you and help you review and /or decide on a plan which works for you and your lifestyle.