Since the start of the Covid-19 pandemic, everyone has had to find new ways to adjust to life under restrictions. The last 12 months have certainly been challenging for all of us in one way or another, either personally or professionally, and it has led people to re-evaluate their priorities. In particular, the pandemic combined with periods of lockdown and furlough has caused many to look at their spending habits and make changes.
In turn, the pandemic has led to a heightened demand for protection policies including Income Protection, as people look for ways to better protect their financial circumstances. As you will see in this article, the impact of the pandemic has changed how UK adults treat their financial situation, with a much bigger focus on being able to access financial support.
One of the first things to understand is what exactly is Income Protection and how could it benefit your household?
Income Protection differs to Life Insurance in that it will offer financial support if you were to fall ill and become unable to work. It can also sometimes be known as permanent health insurance. An Income Protection policy will cover a percentage of your income, usually somewhere around 50-70% but it differs with each provider. There are both short-term and long-term policies available to meet your individual needs.
Income Protection can be helpful if your household would struggle to meet bills and living costs without your income. This type of cover includes most illnesses that leave you unable to work, and covers a broader range of illnesses than a Critical Illness policy. You should check before taking out a policy whether it includes pre-existing conditions.
You can claim multiple times on an Income Protection policy, but there is usually a delay to consider between claiming and receiving payments, this is known as a deferred period.
There has been a growing discussion amongst young adults of whether they should take out an Income Protection policy. Whilst the inability to work due to illness is often attributed to being older, the younger generation are now becoming more interested in safeguarding their earnings.
Royal London claims statistics from 2019 show that the average age of an Income Protection claimant was 40 years old. Similarly, The Exeter revealed the average age of Income Protection Plus claimants in 2019 was 34.
Further research in the LV= Wealth and Wellbeing Monitor report found that approximately 8.3 million of 25-44 year olds in the UK without Income Protection are now considering taking out a policy. This age group is more likely than older age groups to struggle with the financial repercussions of the second coronavirus lockdown.
The LV= Fuel for Life report revealed through its Risk Reality Calculator that couples in their mid-20s have almost a two in three chance of being unable to work for two months or longer before they retire.
It is clear that the pandemic has highlighted a need for households to protect their income from the unexpected, with many having already experienced financial instability over the last 12 months.
Research from Zurich has revealed that since the beginning of the Covid pandemic, 29% of advisers surveyed said demand for Income Protection had increased by 39%. The same research showed that 32% of advisers agreed their relationships with customers had strengthened through lockdown too.
LV= paid out nearly £118m in individual protection claims through 2020, including £14.5m in Income Protection claims. The claims included issues to do with musculoskeletal problems, cancer and mental health, demonstrating the wide range of illnesses covered. Mental health accounted for £4.9m of income-related claims, highlighting the impact the pandemic has had on people.
The self-employed account for around 15% of the working population, and many of those who became self-employed in the tax year of 2019-20 will only just be eligible for the government’s support scheme this year. What’s more, the self-employed also aren’t eligible for benefits like death-in-service, maternity leave and sick pay. In other words, if you became injured or ill, you would have no financial support to help you while you’re unable to earn an income.
The pandemic has taken its toll on a lot of different workers, especially the self-employed, many of whom will have had to close their businesses during lockdown and restrictions. Whether you’re running your own business, a temporary worker or freelance, protecting your income should be just as important as if you were employed as a member of staff.
Income Protection for the self-employed should be a carefully considered option. It can deliver a type of sick pay and provide the necessary financial support. As someone who is self-employed, you will be responsible for the successes and failures of your line of work, and if you have dependents, an Income Protection policy could be incredibly beneficial.
Taking out an Income Protection policy can seem complicated, and it’s important to make sure you have the right cover to protect your financial situation. Zurich research discovered that some advisers admitted relationships with customers had become more difficult, which may be due to disruption and changes to policies due to Covid-19, as well as not being able to meet face-to-face.
Being able to support customers is more important than ever before. At Caspian Insurance, our advisers are here to try and make it as straightforward as possible when it comes to understanding and taking out cover. We can deliver specialist support and a free trust service, making sure you have a clear understanding of your policy.
The team at Caspian Insurance are here to listen to your needs and compare providers, in order to find the most suitable policy for your circumstances. Simply get in touch today and let us help you understand the right cover for your financial situation.