The importance of Income Protection
Our client didn’t have any cover in place when he was struck with an illness which led to sepsis, leaving him unable to work. He is now unable to secure any cover and is dealing with huge changes to his lifestyle as a result.
We were approached by Mr M, a 35-year-old non-smoker who wanted Life Insurance and Income Protection advice. He had been working within the financial services sector, for a major investment bank in the City of London. His basic salary was £38,000 per annum and his previous annual bonus was £10,000. He was single and rented property in Sutton.
Unfortunately, he suffered cholecystitis (inflammation of the gallbladder) in the summer of 2015 which was caused by gall stones. Unfortunately, this led to sepsis, a rare but very serious complication which can cause death.
He is making a recovery but the sepsis has caused long-term damage to his heart. He is under the care of a cardiologist but has been told that he will need heart surgery in the near future, meaning that he is unable to work.
What happens if you are unable to work and do not have Income Protection or savings?
Initially, he received sick pay for one month from his employer, followed by the Statutory Sick Pay of £88.45/wk. (2015). The Statutory Sick pay did not even cover his rent of £800 per month, so with no income and little prospect of being able to return to work within the foreseeable future, he has been forced to live with his parents in Staffordshire.
Our client is now very aware of his mortality and asked us whether he could arrange some personal protection. He told us that ideally, he would like to arrange some financial support whilst he is too unwell to work. However, he is unable to obtain any due to his on-going health problems.
The cost of Life Insurance and Income Protection
Looking at the costs theoretically, they would have been relatively low for our client given he was 35 and a non-smoker.
- A level term life or earlier terminal illness policy with a sum assured of £100,000, until his 67th birthday would have cost £7.77 per month
- Critical Illness Cover with a sum assured of £100,000, until his 67th birthday would have cost £36.68 per month (cheapest), or £61.30 (most comprehensive policy)
Had he arranged Critical Illness cover he would have received a payment of £100,000 as soon as he has undergone the heart surgery.
- An Income Protection policy offering a tax-free monthly ‘income’ of £1,600, once he had been signed off work for more than 8 weeks due to any health issue, would have cost £18.66. This is a budget plan which means that the claim period is two years. This would have allowed him to pay his rent and bills whilst he was expected to be off work, and as a result, he could have stayed in London and remained closer to his friends. A Full Income protection policy would have cost him £46.82 per month.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Please note that any premiums mentioned are indicative only and based on this specific case study/ example, which is shown for information purposes only. Your own circumstances will determine whether the amount payable is more or less than the figure quoted.
‘It won’t happen to me’ Mentality
Mr M’s life has been turned upside down as he has lost his job, his home and has had to move away from friends as he thought it ‘wouldn’t happen to him’. He is now unable to obtain any of the above policies now and may never be able to arrange them in the future. Unsurprisingly, he finds it incredibly upsetting that our recommendations would have cost as little as £61.30 per month. He freely admits that he used to spend more than that amount on coffee and a snack on his daily commute to work each month.
All our case studies are based on actual client scenarios, many of which pre-date 2020. We are confident that the acceptance decision made by the insurers would still be offered. Although it is likely that the rates will have changed, your own circumstances will determine whether what amount will be payable by you and would be fully discussed with you before any plan is implemented.
Client Ref 110638416
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Any quote that your adviser provides you with will take into account your circumstances and medical history, as well as your budget!
An online quote is just that – a quote – it isn’t a definite offer of cover. What really matters is the premium you are offered, after your application has been assessed.
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