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The importance of Income Protection

1/6/2017

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The answer to the question “what do you consider as your most important asset” often doesn’t differ between those nearing retirement and younger earners.

Most consider this their home.

Whilst this is undoubtedly important, I would argue that for those who are still accumulating wealth, in reality the most valuable and important asset is their ability to earn an income.

Consider a 30 year old earning £30,000 per year.  If they lost the ability to work, they would lose over £1M in future earnings.  That doesn’t take into account pay increases due to promotions or inflation, which could easily double or triple this figure.

Most people are familiar with the need to protect assets such as their home and car with the right insurance, but what about protecting your ability to earn an income?  Each day many workers lose their ability to earn an income.  This is generally due to major illness as well as accidents.  But it’s not just major incidents you need to worry about.  Even just a few months or a few years can have a major financial impact on the individual and their family.

An income protection policy will replace a large percentage of your income in the event that you cannot work for a period of time.  This period of time will depend on the policy options you choose.

The funds from your income protection policy can be used to continue paying your mortgage and covering other costs and expenses – thereby maintaining your standard of living.  Without insurance or any other form of income how would you cover these expenses?

Statutory sick pay is designed to cover only short term absences from work and the reality is that a disability pension will not meet the needs of most people.  If you have a mortgage to pay and a family to support, you may find that such benefits fall well short of your real income needs.

If you were to suffer an illness or injury that leaves you unable to work ever again, or even just for a few months or a few years, the impact on you and your family can be financially devastating. It’s also an unfortunate fact that financial problems can lead into other problems.

By having the right income protection in place you can ensure that any disruptions to your income that occur due to illness or injury will not have a major negative impact on you and your family’s way of life. A major element in this is reducing the stress so that you can concentrate on recuperation.

You may take the view, as some do, that “it won’t happen to me”  That is a big risk to take and one which you can effectively pass to an insurance company.

We have not only seen what impact such problems have on people's financial and personal circumstances but have also been fortunate to see how such cover has helped clients maintain their standard of living in times of difficulty.

Don’t disregard income protection it can be an extremely valuable addition to your protection planning.

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    Author

    Director, David Hardman has over 20 years experience in financial services.

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