So, what will happen to your income if you are ill and that continues for the medium to long term, or you are disabled? How long will you continue to be paid by your employer? And at what percentage of pre sickness/disability pay? In my experience the answer varies from 0 to 12 months.
But what happens after that? How long could you and your family last on your savings? What will you get from the state? £21.80, £55.10 or £82.30 per week? and will that be enough?
Well it is not a state secret but you can actually insure your income.
You have probably already insured your house and contents, your car, medical care and maybe your life. But what about the income that pays for all these and other things like food, drink, clothes, household costs, leisure activities, school costs, holidays and everything else?
The best solution to this is a properly specified income protection policy. I am not referring here to accident, sickness and unemployment policies which will only pay out for 12 or 24 months, but to a proper income protection policy which will pay out for the long term, usually your planned retirement age, and which should include index linking.
A good quality version of this cover, deferred for 6 months, to age 65, and with a £1,000 per month income payment will cost.
And if you have to claim the payment is tax free.
I am not suggesting that £1,000 is sufficient for your needs, it may be too much or too little, but it is a figure that is easy to multiply or divide, so for £500 per month divide the cost by 2, for £2,000 double it and so on.
The maximum claim that you can insure for is between 50 and 60% of pre sickness income. If you need more, a critical illness policy can be used. the above costs will increase for longer term cover, (eg to age 70) and reduce for shorter terms, reduce for longer deferred periods or increase for shorter periods. It is possible to get “back to day 1” cover. This will of course be just that, beginning with a back payment.
No insurer in the land, no matter how efficient, will be able to assess a claim instantly assuming that you have submitted it electronically on the first day, but it will then be back dated on acceptance.