The Protection Gap - Covering your income

I am one of those that are reluctant to to take out such insurances - although given the current amount of uncertainty in employment now might be a good time!

But for me, I think the problem is trust in the insurance company. What little experience people (and me) have of insurance companies is that they do everything humanly possible to get out of paying out. I would never be sure I would get the payout.

Saying all that - I'm self-employed and my business insurance "covers" me for time off due to illness (it was inclusive in the policy). Would I ever get the payout? I don't know...

There’s no great theory behind this. Some advisers use the ‘ten times your annual salary’ approach. But like anything linked to money, it’s personal to your circumstances and depends on your lifestage, your partner’s income, plus other investments and equity you hold.

The key is to consider your current salary or contribution and the level of income your dependants would need to maintain their lifestyle until they are fully self-sufficient. It is certainly more complex than a simple replacement salary. Many factors should be considered. The process we might take you through could include:

1. Examining your mortgage and outstanding debt, such as loans and credit cards held in your name. You would need at least enough to cover the balance outstanding.
2. Looking at your life in detail. How many children do you have? What ages are they? Will they need childcare? How much longer do they have left at school? Do they have aspirations to attend university?
3. What associated savings would there be? One car instead of two to run? Reduced energy, council tax or shopping bills?
4. Looking at your partner’s current and projected income. If they have a stable career and good income, he or she may not need as much as a partner with no income of their own.

Value yourself

Putting a price on your life is hard. The important thing is to never undervalue the personal and financial contribution you make. For example, housewives or househusbands make a significant contribution, imagine how much it would it cost to pay someone else to cook and clean as well as look after the children. If you need help, we can tailor cover to meet your individual circumstances and evolving family needs. Ask us about your options today

Life insurance is an affordable way to protect your family’s lifestyle and give them a secure future if you’re no longer around. You can choose the level of cover required. If you die, your insurance policy will pay out a lump sum or regular income for the amount you insure yourself for.

Anyone with family and financial obligations shouldn’t think ‘do I need it?’ but rather ‘what kind and how much?’ Different life insurance policies suit different needs

If in doubt, disclose everything, then the insurance will pay out, so you need to trust them.

At application stage for most health related insurance products, you will be asked all sorts of information. Never bend the truth, even a little. If the insurer finds out, they could refuse a payout at a time when you need the financial support most. Make known any medical diagnosis, treatment or tests you’ve undergone for major illnesses. You must reveal any medication you receive and if you’ve been turned down for cover elsewhere.

Other things which must be declared include:

· weight and height, which is used to calculate your body mass index;
· HIV tests;
· hazardous pursuits;
· lifestyle habits, including smoking and alcohol consumption.

Roughly five per-cent of applicants are asked to take a medical. These tests normally apply to higher risks or people wanting large sums insured.


We are licensed to provide advice on whole of market term products

Income Protection Insurance, also know as Permanent Health Insurance, is designed to provide you with a tax free income if you are unable to work due to an accident or illness. This insurance allows you to concentrate on getting better rather than worrying about how you are going to pay your bills.

You can generally cover up to 60% of your current income, although this does vary between insurers. Some insurers also link their payments to the Retail Prices Index, keeping pace with the true cost of living.

You can also insure full time stay at home parents. A policy will pay out an income to cover any costs incurred employing someone else to carry out important household duties, such as the school run, cleaning and cooking, should the carer fall ill. As you’ll see coverage can be wide ranging.

What’s covered?

Insurance companies will ask you which definition of incapacity you require. The most common are:

· Own occupation - covering you if your accident or illness prevents you from carrying out your own occupation;
· Any suited occupation - covering you if your accident or illness prevents you from carrying out your own occupation and any other occupation specified by the insurance company;
· Any occupation – only covering you if your accident or illness prevents you from carrying out any occupation whatsoever;
· Activities of daily living – only covering you if your accident or illness means you are unable to carry out a selection of everyday tasks, such as washing and dressing yourself;
· Activities of daily working or personal capability assessment – only covering you if your accident or illness means you are unable to carry out a selection of work-related tasks, such as walking, communicating and working with your hands.

Things to watch for

· The premium for Income Protection Insurance depends on your current state of health and medical history, age, sex, occupation, level of incapacity you choose and your chosen deferred period.
· The deferred period is the number of weeks you can manage before you need the income payments from the policy to kick in. Usual deferred periods you can choose from are 4, 8, 13, 26, 52, 56, 104 or 112 weeks. If, for example, your employer pays you sick pay for 12 weeks, you could pick a deferred period of 13 weeks, meaning your income payments from the policy will start once your employer’s sick pay has stopped. The longer the deferred period you choose, the cheaper this insurance is.
· If you start a new job, make sure you or your financial adviser inform the insurance company. Failure to do so could invalidate any future claims.

An Income Protection Insurance policy will start to pay out after the agreed deferred period. These payments will then not stop until you are either:

· well enough to return to work;
· reach the end of the policy term;
· reach retirement;
· or die.

During the policy term, there are usually no limits on the number of claims you can make.

Other Benefits

In addition to the main benefit some policies will also include provision for proportionate and rehabilitiation benefits.

Proportionate benefit, where offered, means that if the nature of your incapacity allows you to take up an alternative occupation, but you cannot earn the same level of income, the policy will pay out a reduced amount on top of your new salary.

Rehabilitation benefit is an income payment that helps you if you do return to your main occupation, but earn less as a result of your incapacity. This is generally restricted to a short term, such as 24 months, after which payment will stop.

The terms of both of these benefits, if they are offered at all will vary between policies and insurers.

If you need more help deciphering the complex exclusions and differences in cover, seek some advice and contact us today

Accident, sickness & unemployment cover, shortened to ASU or known also as mortgage payment protection, is designed to provide you with an income to pay your mortgage and other outgoings if you are unable to work due to an accident, sickness or involuntary unemployment.

This type of insurance usually pays out for a maximum of 12 months, so is a short-term solution. It is particularly advisable for self-employed people, who are reliant on their income to cover their financial commitments, to consider how outgoings would be met, even for short incapacities. If you would prefer an insurance policy that pays out for longer than this, it is possibly more beneficial to consider Permanent Health Insurance, also known as Income Protection Cover instead.

What’s covered?

With ASU cover, you can generally insure up to 60% of your current income, although this does vary between insurers. It’s reasonably flexible, and will allow you to choose whether you would like:

· just accident and sickness cover;
· just unemployment cover;
· or the whole package of accident, sickness and unemployment.

Should you need to make a claim this type of policy will pay out after the deferred period, which is usually one month. Benefits will then be paid to you for the specified period, which is usually 12 months.

Things to watch for

· Lenders will often try to persuade you to take out ASU when embarking on a mortgage or remortgage. But ASU is a standalone product and it’s definitely worth shopping around for the best premiums.

Rather than trawling the growing ASU marketplace yourself, why not contact us and leave us to do all the hard work