Are you one of many people in the UK wondering about their job security in the short-term?
As we approach January 2021, and the payment of a £1000 retention bonus per employee, there are concerns that unemployment will grow. However, there are options and ways in which you can protect your salary in the short-term.
Unemployment to Grow Due to COVID-19
Unemployment figures are rising due to Coronavirus. By taking out income protection insurance you could guarantee up to 70% of your wages if you lose your job due to redundancy or the company going bust.
The coronavirus pandemic has created a situation the likes of which have never been seen for hundreds of years. The UK government has been forced to plough hundreds of billions of pounds into the business sector, unemployment is growing, and the economic rebound has not been as strong as many had hoped.
As a consequence, it seems inevitable that unemployment will grow in the short-term as the economy starts to claw its way back to pre-COVID-19 levels.
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We update all our guides regularly. If you are researching the Income Protection and we haven’t got an exact guide that helps you, keep coming back as we update daily.
How Can I Protect My Salary?
Unfortunately, it looks as though we will see record job losses in the next few months as businesses struggle and look to make savings. While this issue has been on the cards for some time, many people are only now looking towards income protection policies.
They are an effective means of protecting an element of your regular income. So, what does income protection have to offer and is it worth the money?
A recent survey confirmed that while 41% of the general public have life insurance and 16% have private health insurance, only 9% have income protection insurance.
What Is Income Protection Insurance?
Income protection insurance comes in two different forms, long-term protection and short-term protection. The long-term protection will pay you a set percentage of your salary until you are either medically fit to return to work or retire.
Short-term protection will traditionally cover those unable to work as a consequence of sickness/injury. These policy payments tend to last for between 12 and 24 months per claim per condition. Interestingly, you may also be able to add unemployment/redundancy protection to your cover.
What Is Unemployment/Redundancy Protection?
Unemployment/redundancy protection is a means by which you can protect an element of your salary in the event that you are made redundant through no fault of your own. Typical income protection payments will begin after a minimum of 4 weeks, although you will need to check with your insurance provider for the exact details.
As we touched on above, this type of short-term cover tends to last up to 12 months but can be extended to 24 months in some cases, after which payments will cease.
What Should I Receive From My Income Protection Policy?
While the details will vary from company to company, in general, you will receive between 50% and 70% of your gross monthly income. This level will be set when you take out the policy and obviously the higher the payment, the higher the premiums.
A recent report confirmed that more than 97% of claims were fulfilled by income protection insurance companies, which has given significant confidence to income protection policyholders.
Do I Pay Tax on My Income Protection Payments?
No. The idea is simple, taxation will already have been paid on the funds used to pay premiums, and therefore no additional tax will be charged. This can be a very significant factor for those struggling with a limited regular income in the event of redundancy or an inability to work as a consequence of sickness/injury.
How Much Does Income Protection Cost?
This is one of the more common questions and in reality, will vary from person to person as a consequence of their circumstances. For example, insurance companies tend to have four different classes in which they place occupations based upon the risk of illness, injury or redundancy (if this cover has been added).
So, there is no hard and fast rule with regards to premiums, which makes it even more important to shop around and take advice.
Should I Take Advice About Income Protection?
If you have limited or no experience with income protection policies, then you should probably seek advice. Insurance brokers have contacts right across the market and will be able to find the best deal for you and your situation. Brokers now work under extremely transparent conditions and as a consequence, many potential customers see them as more approachable.
What Is a Tied Insurance Broker?
When seeking professional advice about income protection, you will be faced with either an independent insurance broker or a tied insurance broker. In this instance, we will look at tied insurance brokers who are able to deal with a relatively small number of insurance providers.
There is a general misconception that independent brokers are “always” more competitive, but this is not necessarily the case. Active tied insurance brokers may deal with a small number of insurance companies, but due to their volume of business, they may well be able to negotiate a comparable or even better deal than an independent insurance broker counterpart.
What Is an Independent Insurance Broker?
As the term suggests, an independent insurance broker is a party which is not tied to one or a small number of insurance companies. They are literally free to check out the whole market and find the best deal for you. In reality, there will be groups of insurance companies with which independent brokers have a closer relationship.
However, their freedom often allows them to introduce an element of competition among insurance companies to quote the best terms.
Do I Pay Commission to an Insurance Broker?
Historically many customers were concerned about the potential conflict-of-interest regarding commission from third party insurance companies and what was best for them. The situation has changed dramatically in recent times, and all relationships and commissions should be revealed prior to signing an income protection policy.
There are basically three different forms of broker remuneration which include:-
- Commission from the insurance company
- Fee from client
- A mixture of commission/client payment
Total commission rates/charges can vary from low single figures to double digits for different types of an insurance policy. While this should be revealed when discussing individual policies, if not, it is a question you should ask.
Will I Be Able to Claim Income Protection if I Take Voluntary Redundancy?
As we approach January 2021, there is no doubt that we will see a significant rise in UK unemployment. The UK government will be paying £1000 per employee kept on during the coronavirus pandemic with employers free to do as they please after the payment cut-off date. As a consequence, many people are expecting a raft of voluntary redundancy offers as companies look to reduce their wage bills.
It is worth noting that additional income protection insurance is unlikely to pay out if you took voluntary redundancy. As a consequence, you may need to live off your redundancy package for some time. On the plus side, as you are taking voluntary redundancy, it is highly likely you will receive an enhanced offer compared to statutory redundancy terms.
Will I Be Able to Claim Income Protection if I Suffer Compulsory Redundancy?
Yes. This is exactly what income protection insurance (with unemployment cover) was created for. To protect those who suffer compulsory redundancies or are unable to return to work as a consequence of illness.
As we touched on above, you will need to specifically request unemployment protection within your income protection policy. In the current environment, it could be a godsend!
What if My Employer Goes Bust Owing Me Money?
It seems inevitable that some companies in the UK will go under in short to medium-term. They may owe employees significant funds with regards to wages, holiday pay, notice funds and redundancy payments.
Thankfully, the National Insurance fund is there to fund payments where companies are unable to do so. If you have a claim against your previous employer, who is now out of business, you need to go through the Insolvency Service will make an application on your behalf to the National Insurance fund. You will not miss out on your entitlement!
Will I Receive the Same Level of Redundancy From the National Insurance Fund?
You will receive statutory redundancy from the National Insurance fund which may or may not differ from that which your employer would have paid out under normal circumstances. It is extremely unfortunate, but the coronavirus pandemic has wreaked havoc on many company balance sheets.
There will be significant pressure on the National Insurance Fund in the weeks and months ahead, but the UK government is committed to funding such payments.
Can I Claim Benefits Straightaway?
As soon as you are made redundant, you should be eligible for an array of benefits. You may find that some benefits are means-tested, and depending on your redundancy package, you may not be eligible. It is very important to take financial advice when faced with redundancy and a reliance on the benefits system.
In the weeks and months ahead, we will see an array of new funds released to assist those who have been made redundant in finding new employment. The government commitment so far has been huge. More than £300 billion has been used to support the UK economy in the short-term, but more will be required.
It is unfortunate that the coronavirus pandemic has emerged at the same time as the UK government is restructuring the universal credit payment system. This could cause some serious misunderstandings!
As the coronavirus/Covid-19 pandemic continues to grip the UK employment market, it seems inevitable there will be a large number of redundancies in the short to medium-term. Insurance policies such as income protection can be worth their weight in gold as a means of maintaining a significant element of your regular income.
Traditional income protection policies will cover illness/injury, but it may be possible to add unemployment/redundancy cover to a short term policy.
Quick Income Protection FAQs
The cost of income protection insurance will depend upon your individual scenario and your requirements. The long-term income protection cover is more expensive as it could payout for a number of years in various scenarios.
Short-term income protection is limited to between 12 months and 24 months per claim per condition and is, therefore, less of a liability for the insurance company.
While in exceptional circumstances, you may see unemployment protection extended to 24 months, the normal duration is 12 months. All policies include an initial period when no payments are made, which can be anything between 4 weeks and two years.
The deferral period would depend on your redundancy package, level of savings and financial liabilities.
When taking out an income protection policy, which includes redundancy insurance, you need to specify your salary at the time. There is some variation in the level of funds made available under this type of policy, but it tends to vary between 50% and 70% of your regular monthly income.
So for example, if prior to being made redundant you earned £2000 a month before tax, you would receive between £1000 and £1400 a month if made redundant.
How Can Money Savings Advice Help You With an Income Protection Insurance?
Here at Money Savings Advice, we have partnered with some of the UK’s leading Income Protection Insurance brokers. They have already helped thousands of people get the best Income Protection Insurance cover and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.