With the furlough scheme coming to a close at the end of October, many people will be feeling understandably concerned as we continue through this period of job uncertainty. Income protection insurance is an option worth considering now more than ever, as George Square Financial Management explains.
Job losses expected as CJRS winds down
Life is unpredictable at the best of times, and that’s before adding a global pandemic to the equation.
Since March, almost 10 million workers who were unable to do their job because of the coronavirus outbreak have had their wages paid through the Coronavirus Job Retention Scheme (CJRS). But with the scheme winding down in October, there are increasing fears that the UK could be heading towards an unemployment crisis – leaving many people having to manage a sudden loss of income in the months ahead.
How would you support your family if your income stopped?
It’s a difficult question, but something worth thinking about sooner rather than later. Having the right protection already in place is paramount when it comes to ensuring your loved ones are properly supported if you are forced to take an extended break from work.
While rising unemployment figures post-lockdown is a pressing issue, there are a number of other reasons why circumstances can quickly change, such as ill health or an accident. With this in mind, income protection insurance is definitely an option worth considering to protect you against circumstances beyond your control.
Income protection insurance: finding the right policy
Income protection insurance is designed to help you safeguard your salary in the event that you cannot work. It ensures you continue to receive a regular income until you retire or are able to return to work. There are a variety of policies available, including:
- Accident, sickness and unemployment (ASU): a short-term income protection policy that replaces your income should you be unable to work due to accident, sickness or involuntary redundancy. The policy pays you a tax-free monthly amount, usually up to 50% of your income, for a pre-defined period.
- Payment Protection Insurance (PPI): a policy designed to help you keep up with a specific loan or credit repayment for a short period if you’re unable to work. Most people use PPI to cover financial commitments like credit card payments or loan repayments.
- Mortgage Payment Protection Insurance: this insurance covers the cost of your monthly mortgage repayments if you fall ill or lose your job. You can typically decide how much you’d like your policy to pay out every month, but there are usually upper limits in place that depend on your current salary and employment status – roughly £1,500 to £2,000 a month.
Short term vs long term cover
Most income protection insurance policies are short-term. This means they will pay out for a set period, usually up to two years, while you get back on your feet.
In contrast, there are long-term protection policies available that can provide a regular, tax-free income if you are unable to work for a longer period. Unlike critical illness cover, which pays out a lump sum if you are diagnosed with a specific illness, long-term income protection insurance pays out a regular income for a set period of time if you’re deemed too ill to work, regardless of the condition. Most long-term policies have a minimum term of five years and will go on until you reach 67 or your planned retirement age.
Get in touch
The insurance market is very competitive, so it’s always a good idea to compare policies and prices. More importantly, however, is ensuring you get the right policy that provides you with the best possible protection for you and your family. As such, it’s wise to get independent financial advice. Please get in touch with the team at George Square Financial Management to find out how we can help.