This is a collaborative post.
I have talked often about budgeting and money saving here at The Frugal Cottage. And, as of late, more things are important to talk about than others. Things that can cover you and your family, if needed. One of the most important things is to set up an emergency fund, so that can cover something when it goes wrong. Perhaps even cover a month’s wages, or maybe even six. But what happens when, for whatever reason, you are off work long term?
Did you know that you are more likely to be off work sick than you are to pass away before retirement? It’s a strange thought either way, but it is definitely something to think about. Whether you get sick or injured and need to be off work for a period of time without pay, then it’s a tricky situation. The current climate doesn’t help – and it definitely isn’t the norm – but having some kind of backup plan in place is a good thing when it comes to replacing income.
I’m not talking about a side hustle either! I’m talking about income protection.
What is income protection?
Income protection is a type of insurance policy that pays out if you are unable to work because of illness or injury. It usually pays out until retirement, death or you return to work – it just depends. You can get short-term income protection policies which only last a couple of years. The thing to note here is that income protection doesn’t pay out if you’re made redundant. And it is not to be confused with critical illness cover, which pays out a lump sum if you fall seriously ill.
Why should you have it?
If you have a mortgage or any dependents, then income protection in a must. Finding yourself suddenly out of work due to illness or injury can be financially very difficult, especially if you’re the main earner within a household. You might receive sick pay from your employer, but not everyone does. Plus, it might only be a short period of time before it reaches zero. Income protection will enable you to pay your bills and provide that financial stability for your household. If you have children that depend on you, it is even more important that you have something like this in place.
How much does it cost?
The cost of income protection does depend on your lifestyle. Things like age, job, habits, health and medical history are all taken into account. It also depends on what kind of coverage you would like, as that can change the cost. You might choose to cover as much of your income as you can, or just enough to cover your essential bills. It is up to you how long your plan stays in place and how much each claim pays out for. Some decisions to make!
How much will it pay out?
So, depending on what you choose, income protection normally pays out between 50% and 70% of your salary, for the time period you choose. This is normally one of three options – as mentioned before – in that you get better and are able to go back to work, you retire or you pass away during the claim period.
Finally, as with all insurance, it is best to do some research. There are so many different variables to consider! The difference with income protection is that it doesn’t matter the set up of your household; if you have bills to pay then you need to seriously consider getting income protection if you don’t already have it. We have both income protection and critical illness cover, plus life insurance. So, our insurance policies add up to quite a bit each month but they are so important; if anything were to go wrong we have a back-up plan in place which would help us to continue to have money in the bank for the foreseeable future 🙂
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