At the recent Tory party conference the chancellor announced plans to cut a further £10bn from the benefits budget by 2016-17, if the current government are returned to power. This is on top of the £18billion savings announced in 2010. As ever they were quick to say any cuts would be well targeted and would not impact the weak and vulnerable. However the underlying message is clear; relying on the state for any decent standard of living in the event of long term incapacity or serious illness is no longer a realistic option.
Statutory Sick Pay is currently just £85.85 a week for 28 weeks and maximum level benefits under the Employment Support Allowance (ESA) only provide £105.05 a week. It is difficult to imagine how even a meagre standard of living could be maintained at these levels, let alone allowing for the impact of a further £10bn cut. With average monthly costs of keeping a family car on the road, £489, feeding a family, £209, and household spend on energy, £86, it is clear to see that benefits, even as they stand now, will not go very far.
Income protection insurance can be used to protect standard of living in the event of the unforeseen. Typically it will cover a percentage of salary and will pay out if you are unable to work for longer than the deferment period (usually the period when a employer is responsible for covering sick pay), either until you are able to return to employment or until you reach the end of the term of the contract, usually at retirement age.
Income Protection doesn’t rely on a list of illnesses like a critical illness plan. Instead it works on the definition of incapacity – are you too ill to do your own occupation (being the preferable one), too ill to do a suited occupation or too ill to be able to perform certain work tasks (the least preferable option and the one most closely resembling the ESA assessment methods). The benefit can be index linked to retain its spending power and even after a claim and return to work, benefit will remain in place for future claims, without the ability for the insurer to remove or exclude conditions in the event of future claims.
The price of income protection for men is set to rise from 21 December 2012 as implementation of the EU gender directive prompts a move to gender neutral pricing. To highlight these changes, a number of insurers are offering incentives to customers taking out insurance. LV= for example is offering a 5% discount on all income protection policies until 30 November 2012; they will move to gender neutral pricing 1 December 2012, ahead of the 21 December deadline.
For further information about income protection insurance call L&C’s specialist protection and mortgage advice team on 0800 073 1932 for a no obligation discussion.