Protecting your Income
With the current economic crisis still in full swing, added to thatthe enormous increase in the cost of living, there is a certain levelof uncertainty within the contracting and freelancing industry.
Whereas some research suggests a surge in the industry as employerswill not want the cost and responsibility of having employees and willinstead choose contractors; other research implies that businesses willbuckle up their belts and postpone projects altogether.
All of this is added stress to our daily lives and we all know thatstress can be a killer. On top of the current conditions, imagine whatwould happen if you suddenly and unexpectedly became ill, disabled orinvolved in an accident?
Some 2.6 million people in the UK are currently claiming Statebenefits for illness or disability. 50% have been on these benefits for5 or more years.
Statistics provided by David Warren, Business Development Manger at LV= show that an ill or disabled person's claim lasts for an average of seven years.
In a current real life case study provided by LV=
Alan, a 50 year old IT Consultant, had an LV= Income Protection policyfor 6 years before suffering from depression. This condition is stillongoing and LV= have been paying the claim for 5 years. LV= willcontinue to pay until Alan returns to work, dies or the plan finishesits policy term. The income that he is receiving is tax and NICs freeand his monthly insurance premiums were waived when he made the claim.
Under new Government legislation effective in October 2008, Alan would be receiving around £119 weekly (statistics.gov.ukshow that the average household expenditure is £450 per week) in Statebenefits. Given the type of illness, it is also likely that he would beassessed as medically able to undertake some kind of work.
This does not take into account the issue of whether or not Alan hadany personal savings. Savings of over £6,000 reduce state benefits andthose over £16,000 do not qualify at all.
Luckily an LV= Income Protection policyensured that Alan is incapacitated from his chosen job and notdiscriminated against being able to undertake any or any suited job. Inother words, Alan is not expected to undertake any type of work otherthan that type of work that he was already doing.
Any savings he may or may not have will still be intact. Alan's mainsource of income was through dividends not salary, thankfully, LV= count dividends as income that they can insure. Many other providers in the market do not.
The graph below shows net weekly incomes based on three differentsalary levels and the level of benefit and percentage decrease inincome levels on State benefits.
As the graph shows, someone on £40,000 per annum would take a massive 85% reduction in income.
Income Protection insurance policies can be set up for the period ofyour working life until the time that your pension kicks in. Monthlypremiums are calculated according to age and policy terms.
Mortgage Protection policies can be added in conjunction with theIncome Protection and each can run for their own term as necessarygiving you peace of mind that you are financially secure should theunthinkable happen.
It is important to keep up future payments, in order to ensurethat the cover under the plan continues. At no time during or at theend of the term does this policy provide a surrender or encashmentvalue.