We often see a lot of focus on saving for retirement and protecting your business and family in the event of death. But have you considered what would happen if a long-term illness affected your ability to earn an income? You should consider Income Protection Insurance.
How do you protect your family should you be unable to work?
Income Protection Insurance pays a tax-free income after a waiting period, known as a ‘deferred period’. The shorter the deferred period, the more expensive the cover. The longer the period, the cheaper the cover. Generally, the shortest deferred period is four weeks. This means that you have to be unable to work for more than four weeks before any benefit is paid.
Probably the most important part of this insurance is ensuring the occupation definition is right for you. You can choose between:
- The most comprehensive definition is called ‘own occupation’, which means benefits will be paid if you cannot do your normal job.
- A broader definition is ‘any occupation’, which basically means benefits will be paid if you cannot do any type of work.
- The final definition is a ‘work tasks’ definition. In order for a claim to be paid, you have to be unable to perform certain ‘tasks’. For example, walking up a flight of stairs without getting out of breath.
The cover is set up to a predetermined retirement age, so as long as you continue to meet the disability definition, benefits will continue to be paid, either until you are able to return to work or until the end of the plan.
How much Income Protection cover should you get?
It’s important to note that as benefits are paid tax-free, the cover is limited to around 65% of earnings, so you cannot have cover for your full income. Although it won’t pay out your full working income, you will get a substantial amount that will be able to cover mortgage repayments and general living costs.
We can help you to work out how much cover you will need. To do this we take into account your earnings, your monthly outgoings and your affordability.
Income Protection Insurance for farmers and rural workers
In the past, this type of insurance has been almost impossible to obtain in the agricultural sector as the work is classed as high-risk. However, more recently some providers have relaxed their underwriting requirements making cover more affordable for farmers and rural workers. Also, there are now some insurers who offer an ‘own occupation’ basis to farmworkers, which means a claim is more likely to be paid.
Our specialist agricultural team alongside our Independent Financial Adviser can recommend the best cover for your situation.
We can help you with Income Protection Insurance
Before deciding whether or not this type of cover is right for you, you should seek advice from our experts. To discuss your requirements, please contact our Wealth Planning team on info@ellacottswealth.co.uk or 01295 250401 or contact us here.
We have an expert Ellacotts Wealth Planning team who can help you manage your wealth for the future. We are specialists in providing advice on ISAs, investments, pensions and retirement planning.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
