Better value for money income protection?

Whilst you may recognise the benefits that Income Protection insurance cover could deliver for you and your family, we fully understand that there are likely to be many demands on your income stream. If cost is an issue, then do consider these two products that may better suit your pocket.

FAMILY INCOME BENEFIT

General life cover that pays out a lump sum is often in place to help settle the outstanding mortgage. That’s a great help, but for the partner left behind and their children, what about ongoing bills? Everyday items such as food, clothes, utility bills, childcare, or other expenses like holidays and university costs add up.

This is where a Family Income Benefit plan could deliver much-needed support. In the event of your death, it would provide a regular tax-free income for your loved ones. This would be from the time of the claim to the end of the plan term.

It’s often taken out over a 10 to a 20-year term, or whatever may be appropriate in your circumstances. The idea is that should you have a valid claim, then it’s in place to pay out until the children have grown up.

It is generally viewed as a good value plan because the premium is lower. This is because the potential ‘total’ payout over time decreases the further through the policy you get.

How it works

If you took out, for example, a 20-year term, which was set up to pay out £20,000/year and it was claimed against after one year. The family would receive £20,000/year for the next 19 years, equating to a total payout of £380,000 (if no index-linking).

However, if for the same plan, there wasn’t a claim until 18 years into the policy term, the total payout would be just £40,000. If fortunately, there was no claim at all within the 20-year period, then the policy simply runs the whole term without any payout.

SHORTER-TERM INCOME PROTECTION

Income Protection is designed to pay out a tax-free monthly sum in the event that you can’t work due to illness or injury. With the mid-40s being the average initial age to claim, it could run right up until you retire. However, if you’re concerned about minimising your outlay, then a shorter-term version is also available. This could still deliver important financial support for generally up to two years – even five, in some instances.

Analysis by Zurich, an insurer, set out that this type of Income Protection cover for a 35-year-old professional earning the average salary of £27,000. Wishing to protect 50% of their net income may only cost the equivalent of one takeaway coffee a week across the course of each month, for up to two years cover. (Source: Zurich, Cost of Resilience report, August 2018)

Please do get in touch to hear more.

As with all insurance policies, terms, conditions and exclusions will apply.

Finding the extra funds

Putting aside the money to fund a Protection plan may be easier than you think. Consider all those little items we may take for granted, like the odd drink or a magazine. We don’t expect you to give up all of life’s little luxuries. But if you cut out just one unit each week of the items below, then you could save around £150 across a month. In many cases, that’ll be more than you need to cover the cost of a protection policy.

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