/ Money

Why don’t we take out income protection insurance?

Millions of us take out insurance to cover our home, car, health, pets, life, holidays, wedding and teeth. And yet, if one in 10 people insure their mobile, why don’t they also insure their own income?

If you fall ill this Christmas, it’s fairly safe to say in the current climate of austerity that George Osborne won’t be popping round with a bumper hamper and a big cheque. So how would you get by if you couldn’t work?

You might have savings, family or a credit card you can fall back on, but what if your illness carries on for longer? Standard statutory sick pay is £81.60 a week and Employment and Support Allowance is under £100 a week.

That’s not enough to live on for most people, if you qualify at all. And if you need someone to care for you full-time, carer’s allowance of £55.55 a week isn’t going to go very far if they have to give up work to look after you.

Why not protect your income?

One answer to the problem is to take out income protection insurance. So what’s stopping you from taking it out? Here are the reasons I’ve picked out:

  • Cost: Income protection is relatively expensive, particularly at a time when household budgets are stretched.
  • Lack of awareness: Many people just aren’t aware that income protection exists.
  • Lack of a ‘trigger’: If you take out a mortgage, you may want to protect the repayments from day one. Income protection is different as there’s no obvious time to take it out.
  • Trust in the state or family: If you fall ill, someone will take care of you, won’t they?
  • Mis-sold payment protection insurance: The spectre of PPI has undermined consumer confidence in the whole protection industry.
  • Obsession with life insurance: We know we’re going to die at some point, so wanting to provide for our family when we do makes sense. However, most people are far more likely to fall seriously ill than they are to die.
  • Mistrust about whether a claim will be paid: A recent petition called on the government to ‘stop fluffy definitions in protection insurance policies’. They have a point – if consumers don’t fully understand what they’re signing up to, it increases the chances that the insurer won’t pay out when a claim is made.

I’m keen to know whether any of the above reasons (or others) are stopping you from taking out income protection. And, if you found yourself unable to work, where would you turn?

Justin says:
5 December 2011

As an adviser who has recommended income protection to many clients over the year I find that most people think it will never happen to them. It was the first insurance I took out as a young man 20 years ago and I still have the policy now. It gave me peace of mind as I have always worked for an employer (and now myself) who didn’t provide anything more than statutory sick pay, so I knew what trouble I would be in if I fell ill….I think I considered the minimum cover I could get by with as that made the premiums more affordable. If you can have some money set aside for an emergency fund than you can extend the deferred period before a claim is paid out, making the premiums less expensive.

James says:
6 December 2011

Most common stumbling block in my experience is always the price, even those who have approached us for income protection, most people assume unemployment/redundancy cover is included in all policies, and most expect it to cost far less than it does – unfortunately, what isnt realised is YOU are your most important asset, not your car, or your house – none of which you could afford to maintain long term if unable to work!

Until that frame of mind is changed these products will always be seen as a luxury and not a necessity.

We’re looking at getting protection insurance as we’re buying a place and we’re very confused. We know we need life insurance to cover the mortgage, but that’s where it starts to get complicated.

I have very good sick pay and if I was to be made redundant I would get a decent payout. My husband works for a charity so has the bare minimum of sick pay – but does have company sick pay – and for redundancy would get less than me.

So for me, in this current job, I wouldn’t need critical illness or even IP. But I do have underlying medical issues, so am waiting for some quotes to decide if it’s worth getting it now as if I change job in a few years time it could get more expensive (the basic first quote is already double that for life insurance). My husband is relatively healthy so critical illness should be a fairly standard price – and simple to get a quote for!

What has confused me even more (I have a mental block when it comes to finance products) is whether IP would cover long-term illness? And if it does, why does anyone need critical illness cover?

I think my brain has now melted 🙁

My sister was the main breadwinner and at a young age (39) became seriously ill with cancer, its bad enough to cope with something like that and have next to nothing to live on. You can only buy income protection (IP) from an IFA. I am looking for IP for my husband and it is difficult finding an IFA you can trust. We got a quote from one small IFA company and have found another larger award winning IFA company who recommended the same insurance company at the same price. The difference was that the large IFA will fight your corner if you need to make a claim, we will probably go with them. Income protection covers all illnesses and I wouldn’t even bother with critical illness cover, because anything can happen and it is devastating when it does.

You forgot a reason. Some of us already have long-term conditions and therefore can’t get insurance for any kind of affordable price.

Chris says:
10 April 2013

‘However, most people are far more likely to fall seriously ill than they are to die.’ I’m sorry, what?