Lack of financial safety net makes protection crucial

Millions of people in the UK lack a financial safety net. It means they could be putting their home and more on the line should they be hit with unexpected bills or are unable to work.

You can never be certain what’s going to happen in life. Having an emergency fund you can fall back on makes it easier and less stressful to overcome financial obstacles. From losing your job to being unable to work due to injury or illness, having a backup plan is important.

However, for many Brits, there is no Plan B. According to research from Aegon:

  • 70% have no form of financial protection
  • 45% would need to rely on savings if they were unable to work for six months or more
  • But 9.79 million households (36%) have no savings
  • And 3.54 million (13%) have less than £1,500
  • One in 10 don’t know how they’d cope if they didn’t receive an income for six months or more

With many not having enough savings to see them through periods where regular income isn’t coming in, protection is crucial. The figures suggest that around 36 million people would not be able to support themselves and their families if they were unable to work for longer than six months.

Income Protection can provide a much-needed safety net and give families peace of mind knowing that essentials will be covered should they face a financial challenge.

Simon Jacobs, Head of Underwriting and Claims at Aegon, said: “Protection is there to replace an individual’s income when unexpected events occur. In the worst case scenario this covers death, but it can also provide support when people are struck by serious illness.

“It’s an important safety net that can help people meet their monthly expenses, ranging from mortgage repayments to their supermarket shopping. However, the reality is that far too many people in the UK are putting themselves and their families at unnecessary risk by not taking steps to financially protect themselves.”

If you think you could benefit from Income Protection, these are the essential points you should know:

What is Income Protection?

Income Protection is a product that you usually pay a monthly premium for. It acts as an insurance policy should you not be able to work due to illness or injury.

Income Protection is used to cover long-term income losses, providing you with a safety net if your standard sick pay doesn’t. Income Protection policies come with deferred periods, which can range from a few weeks to months. This allows you to match the product you choose with the sick pay that your employer provides.

Should you make a claim, once the deferred period is over, you’ll receive monthly payments. These payments will be a portion of your normal salary. Again, the amount paid will depend on the policy you choose but the standard range is 50-70%. When choosing a policy, it’s important to look at how much of your income you need to cover essentials bills.

The payments will continue to be made until you go back to work. In some cases, they will be made until you reach retirement age.

Who needs Income Protection?

Nobody wants to think about being injured or ill. Especially for a length of time that significantly impacts your finances. But it can happen to anyone.

If you couldn’t survive on your employer’s sick pay policy and your savings for a long period of time, income protection can be useful. Many people believe they won’t benefit from Income Protection because they’re not homeowners or don’t have dependents. But even without a mortgage or children, you probably have some financial responsibilities. From paying rent to simply doing a food shop, Income Protection can provide security.

It’s important to take a look at your finances and understand how long you could support yourself and your family for should your regular income stop.

How often does Income Protection pay out?

It’s understandable to be worried that Income Protection policies won’t pay out; it’s a common myth.

But figures show the vast majority of claims made are upheld and that thousands of people benefit from taking out protection each year. In 2017, 97.8% of claims made through Income Protection, Critical Illness or Life Insurance policies were upheld, according to the Association of British Insurers. In total, insurers paid out £13.9 million every day, helping individuals to continue meeting their financial obligations through times of financial uncertainty.

For Income Protection claims, the average amount paid out was £21,295 and 87.2% of claims were paid.

If you’re worried about your financial security, we can advise you on the protection products that could act as a safety net when needed and suit your lifestyle.