That’s right, no help from the state and a loss of income of up to one third, with such a dramatic income cut, you could see secured loans and mortgages go unpaid, or unsecured debts such as credit cards or bank loans fall into arrears.
Within months your credit score could tumble due to missed payments, the attractive balance transfers dry up as you are now classed as high risk, with no option but to remain with your current card provider paying crazy amounts of interest for the foreseeable future.
Soon the family holiday is now off the table, two cars on the driveway now become one, down branding comes in to play at the supermarket, the uncomfortable decline to a restaurant invite with friends, a bleak picture starts to emerge and a frantic search through your files proves fruitless, hoping, praying you’re covered, that one policy you took out many years ago for a few quid will be the answer to your prays only to discover it’s a life policy and you’re not insured.
Do not hide from debt – talk
If you do find yourself uninsured and sliding into debt, speak to your lender and explain the situation – don’t put it off, ask them to freeze the interest or give you a payment holiday.
So, life insurance won’t be much help, if you’re unable to work due to sickness; it won’t pay your bills. It may pay out early if the illness is terminal, but that’s not the outcome we’re seeking.
Income protection however is designed to support you financially if you can’t work due to illness or injury and can have a deferred period or pay a proportion of your income until the end of the term.
If you suffer a loss of income, you’ll still have to pay off your debts, so it’s worth keeping them under control, the stresses of no income can also lead to relationship strains and potentially divorce; it can all be avoided with the right policy in place. With our clients, protection is the foundation stone to planning, how will you reach your retirement goals if there is no income coming in?
Coping with loss of income
There are so many different types of insurance, payment protection insurance, critical illness cover, short-term income protection insurance, family income benefit insurance, decreasing term policies, level term policies, whole of life policies, mortgage protection, life insurance, Gift Inter-Vivos insurance it can be a minefield.
We all have different protection needs, I have multiple policies with different insurers for that very reason, and I know what I need and who to go with.
Speaking to an adviser is a good start if it’s been on your to do list, you may be able to afford the right blend of cover for your needs or you may have a budget to work to. Something is better than nothing and will give you peace of mind to have that initial chat.
However, if you have savings, the general rule is to have enough money saved up to be able to cover essential outgoings for at least three months, this is a great help when looking for income protection insurance, if that is your need, as you can reduce the cost by applying a deferring period from weeks to months.
How long does it take to be covered for a typical client?
Searching the whole of the market for the right cover could take minutes but also could take a little longer to work out the right cover – depending on how complex are your needs.
Much depends on age, health, marital status and whether or not you smoke. So once we have had an exploratory call, and plan your needs, we then move on to the application which takes around 20 minutes, you could be accepted straight away depending on age and medical history or the application could be referred to underwriters.
It could mean they require a little more clarification or they may ask for a GP report or nurses screening and potentially some medical tests before terms will be offered, if further information is required it may take around a month as GPs always tend to leave the request for a GP report for the full 21 days at the bottom of the to-do pile, frustrating when the cover is to mitigate an inheritance tax liability, with the ongoing pandemic it may take a few more weeks so don’t delay.
Covid questions are now starting to appear on medical questionnaires, such as, in the last month have you had a new continuous cough/ or fever/ temperature, been confirmed to have or suspect to have coronavirus or been advised to self-isolate by a medical professional?
With the unknowns of long Covid, a protection review against loss of income should be popped in your diary sooner rather than later.
So how do you know if you need protection insurance or any other insurance? Are you under-insured? Or over-insured? Drop us an email at [email protected] and we can give you an idea.
For more content like this visit our Finance channel.Last modified: May 25, 2021