Income protection: The overlooked lifeline in financial planning

15 Aug 2023

One of the most frequently overlooked aspects of financial planning is income protection insurance.

While it is easy to focus on immediate needs and short-term financial goals, planning for potential future hurdles can sometimes allow this critical form of insurance to slip through the cracks.

Despite its significant benefits, many people fail to give it the consideration it truly deserves, often until it is too late.

What is income protection?

Income protection is a type of insurance that pays out if you are unable to work due to a significant illness or injury.

Unlike critical illness cover, which pays out a one-off lump sum if you have a specific serious illness, income protection provides regular monthly payments.

This is typically up to a certain percentage of your regular income until you are able to return to work or until the policy ends.

Why is income protection important?

The reasons for obtaining income protection seem obvious, but when you look in greater detail you can see why it might be a great investment for you and your family:

Maintaining your lifestyle: Your income is the foundation of your lifestyle. If you are unable to work due to an unforeseen event such as an illness or accident, income protection insurance can provide you with a consistent income stream.

This allows you to cover your day-to-day living expenses, maintain your current lifestyle, and secure your financial stability without depleting your savings.

Covering debts and obligations: With the steady income from the policy, you can continue meeting your financial commitments, such as mortgage payments, utility bills, and credit card debt.

This can provide immense relief during a challenging time, ensuring your liabilities do not become an additional burden.

Recovery without financial stress: Health issues are stressful enough without adding financial worries to the mix. Income protection allows you to focus on recovery, without the strain of worrying about how to meet your financial obligations.

Income protection helps to reduce stress and contributes to a healthier state of mind, which can speed up recovery in some instances, but if nothing else provides peace of mind.

Flexible and customisable: Income protection policies are flexible and can be tailored to suit your needs.

You can typically choose the deferred period (the time you wait before the policy pays out), the percentage of income you wish to cover, and the duration of the policy.

This flexibility allows you to fine-tune your coverage based on your financial situation.

Protection for the self-employed: For self-employed individuals or small business owners, income protection can be a financial safety net.

With no employer to provide sick pay or a benefits package, this type of policy can be a lifesaver, providing much-needed security.

Income protection is often overlooked due to misconceptions about cost, necessity, and the belief that ‘it will not happen to me’.

However, illness and injuries can occur at any time and can have long-term impacts on your earning ability.

Before purchasing any policy, it is important to speak with a financial adviser to understand the full range of options available and to ensure the policy suits your specific needs and circumstances.

To find out how we can help you find the right level of income protection, please get in touch.