Recent research1 by Aviva shows that nearly half of parents with dependent children are concerned about what would happen to their finances if they or a member of their family developed a serious illness and was unable to work, believing they could not support their lifestyle for even a month. However, they are still more likely to buy protection for bricks and mortar, phones and pets than insure themselves or their partner against a loss of income due to ill health.
In fact three quarters of those surveyed admitted they had no back-up plans that would replace the income they could stand to lose due to ill health.
Becoming a parent means dealing with huge financial responsibilities, so it can really pay to have a plan in place that would provide protection if the family found themselves facing illness and a consequent drop in income.
Experiencing a long-term illness or injury can be difficult enough on its own without the added pressure of financial worries. This is where taking out an income protection plan makes good financial sense, as it would mean that when they are needed most, funds are available to ensure that bills continue to be paid.
Income protection policies
These policies pay out if you’re not able to work and earn money due to illness or injury, and, in some cases, forced unemployment. They are designed to cover core monthly financial commitments such as a mortgage or rent, food and bills, providing valuable protection for breadwinners, the self-employed, and employees who receive limited or no sick pay from their employers.
The maximum amount you can claim is usually your net monthly earnings after tax, minus any state benefits you may receive. This could be around 55% of your gross earnings and is usually tax-free. Policies pay out after a chosen deferred period, typically between four and 52 weeks, and can continue until you return to work or the policy term comes to an end. Some policies also provide benefits if you go back to work in a reduced capacity on a reduced salary.
There’s a wide range of policies and benefits available; an independent financial adviser can offer advice that will help you make the right choice for your family circumstances.
If the policy has no investment element then it will have no cash in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse.
1Aviva, Protecting Our Families, 2017