When it comes to income insurance there are two main types of plan available in the market to consider; short term accident and sickness cover and long term income protection (which used to be called permanent health insurance). Unfortunately, long term plans are too often overlooked in favour of cheaper short term alternatives at the expense of gaining true 'real life' earnings protection.
In far too many cases consumers are over-focused on the short-term risks they face. These risks often relate to an injury such as a broken arm, rather than a long-term illness like cancer or multiple sclerosis (MS). The reality is that most people would be able to survive for a few months should they have to take time off work due to illness or injury.
During this time funds could be obtained from savings, their partner's income and family members. Some companies would even provide full pay for a short while and all companies are required to provide statutory sick pay for up to 28 weeks, albeit at a very modest rate of £79.15 per week (as at February 2011).
In this sense, having to take a short amount of time off work would be a really big inconvenience but it isn't likely to cause serious and prolonged hardship. The real risk is if a much longer period of time had to be taken off work, such as four years, say, or even never being able to work again.
The issue is that the insurance industry has blurred the definition between short-term payment protection type sickness insurance plans and true income protection, you only have to do a quick search online to see this for yourself.
Firstly, this means that many people are not even aware of their long-term protection options and end up taking out cover that can only payout for a maximum of 12 consecutive months. Secondly, even if knowledge of long-term plans does exist, the lower cost nature of short-term plans too often encourages a ‘that will do' attitude towards earnings protection.
Ultimately, more consumer education is needed when it comes to covering earnings against the real risk of long-term incapacity, which needs to start with insurers and advisers setting out all risks faced and providing a variety of options for cover.
Tom Conner
Drewberry Insurance
www.drewberryincomeprotection.co.uk
> Give this post the thumbs up or thumbs down
