Income protection (IP) is arguably the most important form of protection. As simple as it sounds, if an individual cannot work for any given reason, it provides them with an income.
It is designed to protect up to an average of 70 per cent of your gross salary in the short-and long-terms should you be unable to work due to sickness, an accident or in some cases, unemployment.
However, protecting what is probably your most important asset – your income – is often overlooked. In fact, according to the Association of British Insurers (ABI), only 9.4 per cent (3.6m) of UK workers have actually protected their income.
Given that the statutory sick pay in the UK is only £87.70 a week for up to 28 weeks if you are too ill to work, there has never been a more important time to protect your salary. According to the Department of Work and Pensions (DWP), as of the end of November 2012, 1.45m people have been claiming Employment and Support Allowance (ESA), which provides financial help to people who are unable to work because of a health condition or disability.
What’s out there?
Table 1 shows the basic details for each IP plan for the 18 providers that responded to our survey. As always, some providers who responded to the last survey were unable to complete the survey. Unum and Barclays are absent as both stopped selling individual IP last year.
The minimum age for taking out a policy is typically 18; however some allow those aged 17 to take out a policy and in the case of Cirencester Friendly and Exeter Family Friendly, the minimum age is 16. The maximum age for taking out a policy averages between 54 and 65, but some – British Friendly, LV= and Friends Life – offer IP up to the age of 70. In Money Management’s last survey in August 2011, the maximum age was from British Friendly and Unum at 64 years old, and Barclays at 69 for a one- or two-year product only.
These changes in age suggest terms have been altered in light of the state retirement age abolition in 2011. Now employees can choose when to retire, it possibly makes creating a maximum age for IP providers difficult. All policies can limit the age until which benefits will be available, and they range from 65 to 70. The only exception is Bright Grey, whose benefit is only payable until age 64 – reduced from 65 in the last survey. Policies on the whole are paying out for longer, suggesting an increase in retirement age as well as longevity.
