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How protecting your income could help you avoid a financial nightmare

26th November 2021

According to a recent inews article, the Office for National Statistics estimates 1.2 million people in the UK have long Covid. Sufferers experience symptoms including extreme tiredness, shortness of breath, and dizziness, all of which could mean time off work with illness.

It’s another sobering reminder of one of the key lessons from the pandemic: expect the unexpected at any time. That said, while the pandemic has brought this lesson into sharp focus, it’s not new.

In March 2020, just prior to the Covid pandemic, Cancer Research UK revealed that more than 367,000 people are diagnosed with cancer each year in the UK. That’s a new diagnosis every two minutes.

Being diagnosed with a serious illness and not being able to work could have a serious impact on your finances and could jeopardise your immediate and long-term financial security.

There is good news though, as protecting your income and creating a financial safety net could help you and your family maintain your lifestyle, savings and even your pension plans. Read on to discover how you could do this.

Before you do, however, let’s look at what happens if you cannot work and have to rely on Statutory Sick Pay.

You may have to live on less than £100 a week

While your employer may continue to pay your full income for three to six months while you’re unable to work, there is no obligation for them to do so. In some cases, employers stop paying your full salary after just a month, so always check to see how long you would be paid for if you’re unsure.

Once your employer’s sick pay ends, if you do not have any income protection in place, you may need to use your savings to make ends meet. While you could also be entitled to Statutory Sick Pay (SSP), in 2021/22 this is £96.35 a week (£5,010.20 a year), far below the amount you’re likely to need to cover even essential outgoings.

Not only would living on this amount create stress at a time when you probably need it least, it could jeopardise your financial future. This is because you’ll probably be unable to maintain your pension contributions, which may significantly reduce the value of your pension and your lifestyle when you retire.

Income protection provides an income if you’re unable to work

Income protection could be invaluable as it typically pays you a monthly tax-free sum until you return to your job, or your protection period ends. This could allow you to maintain your standard of living and continue your financial commitments, such as your mortgage repayments and pension contributions.

While the amount you receive depends on your salary and policy, it’s typically around 60% of your regular income.

The cover usually pays out after a deferred period, and the longer this is the lower the monthly premiums are likely to be. Typically, the deferred period dovetails with your company sick pay to ensure you have a continuous income.

The cost of income protection is determined by factors including:

  • Your age
  • How risky your work is
  • Your medical record
  • How much income you want to cover.

It’s important to remember that most income protection plans don’t cover every illness, and you probably won’t be covered for pre-existing conditions. A financial planner could help confirm which illnesses you’re protected against.

Critical illness could provide a lump sum if you’re diagnosed with a serious illness

Critical illness cover (CIC) pays a tax-free lump sum if you’re diagnosed with, or need treatment for, a serious condition such as cancer, a heart attack, or multiple sclerosis. This can be used to pay for medical treatment, repay debts, modify your home or maintain your standard of living if you have an extended period off work.

Like income protection, having CIC could provide peace of mind that if the unexpected does happen, your finances wouldn’t be impacted.

As with income protection, the illnesses covered will vary and the cost of the premiums will again depend on factors including your age, medical history and risk associated with your job.

Get in touch

Covering your income really could help protect you and your family from the unexpected, and help make sure your long-term goals aren’t affected by illness or accident. If you would like to discuss how you could protect your income, please email us on or call 01277 350560 and we’d be happy to help.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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