How Much Income Do You Have At Risk?

Aug 01

When thinking about our finances, it is likely that most of us have all the necessary insurances in place to protect our assets and those things that are important to us such as home insurance, insurance for our gadgets, and pet insurance etc.

But have you ever thought about how you would actually pay for those insurances and for your living expenses if you lost your income? Many people actually forget to insure probably one of the most important things that is the driver behind everything else –their income.

Without an income (and recent research showed that the average worker has just enough money to last them 52 days*), how would you survive financially?

Loss of income isn’t discriminatory 

Anyone, regardless of age, sex or occupation, could suddenly find themselves a victim of prolonged illness or an accident that leaves them incapacitated and unable to work. In fact, data suggests that 1 in 5 of us is likely to go on long term sick leave during our working lives.

The solution

So, what can you do to protect your income? The good news is that there is a product that will give you the peace of mind that should you become unable to work for a period of time (which could be months or even years), you will still receive an acceptable income (typically 60-75% of your gross monthly salary).

Income protection insurance (also sometimes known as permanent health insurance or PHI) exists for this very purpose. It is:

  • a long term solution in cases of incapacity;
  • not payment protection insurance (or PPI) which has attracted a lot of negative press over the last few years;
  • a policy that pays out a monthly, tax free cash sum for as long as you are unable to work – this could be until retirement age, your death, or if / when you are able to work again.

Is income protection insurance suitable for you?

This is probably an ironic question, as any worker could benefit from this insurance (in fact, consumer organisation Which? says: “Alongside life insurance, income protection is a must-have insurance for most working adults”).

If you look at the data surrounding incapacity – which you can view as part of this guide to Awareness of income protection – you will see that it could affect any one of us.

According to the BBC, the average earnings of a UK worker are £26,500 a year. With state assistance totalling around an average of £5,200 a year, most people would struggle to meet their financial commitments.

If you are unable to work for longer than a year, then any savings you may have would be seriously depleted.

To see how much your shortfall could be in the event of losing your income due to incapacity and surviving on government assistance, there is also a calculator in the Awareness of income protection guide which highlights just how important income protection insurance can be.

Finding out more from a specialist may be your next step.

*For sources for all data, please visit: Drewberry Insurance


Tom Conner is Head of Protection at Drewberry Insurance, a London based independent insurance brokerage providing insurance services to individuals and organisations throughout the UK.