Have you got it covered?

Loss of income due to illness or accident is most families’ worst nightmare. Statistically, we are more likely to fall ill or suffer a serious injury during our working lives than to die, yet many of us have no financial back-up plan.

You may be fortunate to have some support from your employer in the short term, and a smaller minority are provided with longer term assistance via a group insurance plan. It’s worth asking at work what provision you would qualify for in the event of a longer term absence due to  accident or illness.

The vast majority of us don’t have any cover, and for those that do have some provision, it may only cover a small percentage of your actual income and is unlikely to cover your regular expenditure. For many, the drop in income is too severe to maintain your family’s standard of living.

Peace of mind in the event of  income reduction

There are two main solutions to ensure you have financial well-being in the event of a long term accident or sickness:-

1. Build up an emergency lump sum.
If your monthly expenditure is £2,500 per month, then you may need an emergency sum of anything between £7,500, which would cover you for 3 months, and £90,000 if you were unable to work for 3 years (not an untypical period of time for someone off with a long term illness).

2. An insurance policy
To protect your family in the event of long term absence through illness or an accident, you should consider an income protection plan; the aim of this insurance is to provide you with a regular income if you suffer a long-term illness or injury that leads to loss of earnings.

You can choose the amount of income you wish to protect, but generally the maximum you can insure your income for is about 75% of your income before tax from all sources. The benefit from an Income Protection Plan is usually paid tax free.

What do insurance plans cost?

To give you a rough guide, here’s a fictional scenario. Mr Humphries is 40 years old, married, and has a 6 year old daughter, he provides the only source of income to his family and he earns £45,000 per year. His family expenditure is £2,500 per month.

The investment in an insurance plan could be as low as £57.82, for a monthly tax free benefit of £2,062 per month.

Next steps?

• Check the benefits your employer will provide;
• Consider how much emergency fund you could build up and rely upon; and
• Talk to one of our consultants who will advise you on the correct level of cover and the different options available.

If you would like to discuss how Cullen Wealth can assist you with solutions to protect your income, then please get in touch with your Cullen consultant or email askus@cullenwealth.co.uk