Protecting Your Income

Gary Naylor

Events in a person’s life often happen in the most unexpected and unpredictable of ways.

As financial advisers we know this better than most, as helping our clients understand the need to plan to become financially resilient in the face of some the most difficult changes that people can experience in life, is part of our advice process.

Those who have experienced a major (or sometimes even only a minor change) in their health or wellbeing, which has left them unable to work, will understand only too well the need for an income protection policy. It is sometimes very easy to think ‘it won’t happen to me’, but it is worth considering, how well would you cope financially if you couldn’t work for an extended period? The reality is whether you are working or not, you still have bills to pay, and if you are unwell or seriously injured, the last thing you want to have to worry about is how you are going to find the money for these bills.

We would always recommend our clients try to build up an ‘emergency fund’, i.e. some money on deposit available at very short notice, which can get them through short term absences of 3 to 6 months. However, very few people during their working life will be in the position where they could hold enough savings to cope with extended periods off work. This is where income protection insurance comes in, as it looks to provide a replacement income in the event of being unable to work for a sustained period of time. Payment commences after a pre-defined period where the policyholder is unable to work (known as the ‘deferred period’). This period can be very short, or it could be as long as a year, for example where some employers continue to pay their employees for 6 to 12 months, however, the shorter the ‘deferred period’ the more expensive the premium, so there is a balance to be struck here.

Like any financial product, it is also important to keep income protection under review, as a promotion, change of working pattern or change of employer could affect salary or sick pay entitlement. Similarly, a new relationship or living arrangements, moving house, having children or watching them leave home can all impact on monthly outgoings and have knock-on impacts on pension contributions, savings and other insurances.

We strongly believe that income protection should be on the list of things to review and consider and to take action to protect individuals and their families. If you would like more information on this please contact Optimum Independent Financial Advisers.