Income Protection is a topic we talk about a lot. The reason for this is because we believe in its value to provide genuine peace of mind to you and your family in the event that the breadwinner in the home is unable to work. Let’s look at the alternatives.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
Income Protection – why it is the most full-proof insurance
We also talk a lot about Life Cover and Critical Illness Cover (CIC) and in an ideal world, you would have all three facets of protection, as each will protect your family finances in a different way.
CIC is a hugely welcomed lumpsum in the event of being diagnosed with a long-term health condition that means you will be out of work.
See how these people benefited from Critical Illness Cover when they needed it most.
Life Cover is deemed essential when you have a mortgage and dependents, and most people want to ensure that their loved ones are not picking up the pieces in the event of their death.
Income Protection though is really the one which is worth it’s weight in gold. It pays a lump sum each and every month that you are unable to work, and really ensures you can keep your existing lifestyle whilst not draining your wealth pot.
Before reading further, note that in 2019 Aviva reported an average claim length for Income Protection of 6 years, 11 months.
The average age at time of first claim was 43, with the primary reasons being musculoskeletal, mental illness and cancer.
What are your alternatives to Income Protection?
There are of course always options. Although, most are fairly grim when taking into account the prospect of needing to generate income over a long-period.
(1) Employer’s Sick Pay
If working for the NHS you will be entitled to six months full salary following incapacitation, which could see you through, for example, a broken bone, a bad back, or a short-term period of stress.
If you are self-employed or a director of your own private practice, you won’t have this luxury – making Income Protection even more essential.
(2) Use savings
Any further need to remain off work after the sick pay has come to an end and you would need to start using your own resources.
It is likely that as hardworking doctors and dentists, you will have some funds for a rainy day.
However, taking into account the average claim period for Income Protection is almost 7 years, how big is your “rainy day fund”? Working on a conservative salary of £50,000, multiplied by 7 years, equals £350,000 that could be required to maintain your current lifestyle over a seven year period.
(3) Use wealth
Most doctors and dentists won’t have six-digit savings accounts. You may though have accumulated wealth in your residential property, your investment properties or other investment funds.
One option is to utilise this wealth by remortgaging to release equity, or realising assets early to make a financial gain that can then fuel your savings account and cover your income deficit.
It isn’t a very attractive option though when considering how hard you worked to build the wealth.
(4) You already have CIC
If you have cover that protects you against critical illness, you may feel like you don’t need Income Protection.
Worth bearing in mind that CIC has a stringent list of conditions and illnesses that are covered. Unlike CIC, Income Protection claims are only interested in your inability to work, so are much more flexible – another reason why we rate Income Protection so highly.
(5) You have another adequate salary in the household
If you have another high-earner in your household, i.e. your spouse, and you think that your lifestyle wouldn’t be affected given a loss of your own earnings, then Income Protection may not be required.
Realistically, most households would still have to make adjustments to their spending should one income stream be wiped out and this can add financial burden to a sole breadwinner.
Creating a protection strategy for you and your family
Income Protection Insurance is in fact very affordable. It is also most affordable when taking the policy at a time when you are young and healthy. Delaying ten years can double the premium, which is fixed for the policy duration. Review this Income Protection quote to see an example.
Income Protection essentially gives you peace of mind that you can maintain your current lifestyle, remain in your family home, cover your children’s school fees and your day-to-day living costs.
When faced with the prospect of injury, accident or sickness, minimising any financial stress is a key goal.
We can help you to put in place a protection strategy that suits your needs.
Protect your valuable income stream
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Dental & Medical Financial Services have been helping doctors and dentists to build and protect their wealth, whilst saving tax for over 25 years.