Income protection insurance is held by few of us but could provide vital revenue at a difficult time
What would happen if you fell so seriously ill you could not work for several months? Only a small number of us could give a confident answer. One in 10 employees is covered by income protection insurance by their employer and, if their claim were accepted, would get a significant proportion of their salary paid.
The rest of us would probably be dependent on our employer's willingness to continue paying us, the state, the earnings of a partner, or on our savings. In the worst cases, we may end up selling our home, or downsizing, if we could not meet the mortgage or rent. In most cases, we would be much more aware of having difficulty paying everyday bills.
Employers are not obliged to keep paying people in these situations and, the more generous among them, tend to pay a full salary for three months and then half pay for the next three. Support is available from the state, in the form of statutory sick pay, but it is not generous. The standard payout is �81.60 a week, while employment and support allowance pays up to �99.85 a week.
Keen to reduce costs, the government has set up a review of long-term sickness. Due to report later this year, it could recommend requiring employers and employees to buy insurance. The bandwagon is already rolling. Demos, the thinktank, has published its Of Mutual Benefit report, urging the government to encourage "the take-up of personal welfare insurance through national insurance rebates".
According to Demos: "Employment support allowance penalises savers and homeowners by means-testing for savings above �16,000, punishing good financial planning and leaving middle earners more open to the financial shock in the case of unemployment." The insurer Unum will begin an advertising campaign in late summer to make workers aware of the dangers awaiting the uninsured.
So how much does it cost to cover yourself privately? As our table shows, a 35-year-old man would pay an average of �24 a month for an indefinite �1,000-a-month payment, and a 35-year-old woman would pay �36 for the same cover (although the two rates should be expected to harmonise at about �30 a month following the recent ruling on unisex rates).
Nevertheless, paying nearly �400 more a year for one specialist insurance is far more than most people feel they can afford. Marco Forato, chief marketing officer of Unum, says employer schemes are far cheaper (because risk is spread among the workforce) and represent an answer for the future: "Income protection should not cost more than �200 a year per employee."
Most individuals taking out standalone policies do so because they are taking on a mortgage and their financial adviser suggests it. The individual's premiums are based on a wide range of personal factors ? including age, occupation, location, the disclosures their medical history and (for the time being) their sex.
Matt Morris of independent financial adviser Baigrie Davies is a specialist in life and health-related insurances and is a big fan of this type of policy. "Of all the protection products, income protection is the most important and should be the first port of call for most people," he says.
Retired financial adviser Garry Spencer handled these policies for 25 years and sees some practical problems: "You have to be careful you are not taking it out when you don't actually need it," he says, referring to employees who are already well covered at work. And he adds: "It's harder to get a payment now than it was 10 or 15 years ago."
At that time, when treatments were less advanced, insurers paid out more often on prostate cancer or malignant melanoma claims, for instance. People who want this insurance can buy over the internet.
But Matt Morris says: "For most people, taking some form of independent advice would be good."
Richard Lynch, editor of the employment newsletter Fightback, thinks employers have, so far, resisted the temptation to cut back on disability benefits. Some banks still even offer ill-health early retirement pensions. But he thinks that changes are on the way, and expects to see "more early intervention" by workplace-based occupational health teams.
Mental and nervous conditions account for 30% of claims made to Unum, followed by cancer (20%) and muscular-skeletal (12%). And we may find that the government soon nudges, or requires us, to buy insurance to help us if we succumb to long-term illness.
Source: http://www.guardian.co.uk/money/2011/apr/16/income-protection-insurance-salary-cover
Pop and rock Biffy Clyro Arsène Wenger Climate change Wildlife Ireland
No comments:
Post a Comment