Income protection insurance can keep your finances healthy if you fall ill (Image: Getty)
Closer to home there are fears over theft, fraud, online crime and even social unrest. Much of this is beyond our control. But one area where we can act is insurance. While specialist cover does exist for cybercrime or even terrorism and war risk, it’s too niche and expensive for most of us. What we can do is make sure the basics are covered. Travel insurance protects our holidays, while buildings and contents cover safeguards our homes and belongings.
Insurers say the wider sense of uncertainty is also driving demand for protection such as life insurance, income protection and critical illness cover, as households race to secure themselves and their families in case the worst happens. Almost half of us feel less safe than a decade ago, according to research from National Friendly. Concern has jumped in recent weeks, with 41% considering buying protection, up from 28% in February.
National Friendly chief executive Graham Singleton said anxiety is prompting action and driving protection sales. “Life, income protection and critical illness cover can protect families financially, and may be more affordable than people think.”
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Income protection replaces earnings if illness stops you from working. It’s sometimes confused with payment protection insurance, or PPI, an inferior type of cover scandalously mis-sold by the banks. Income protection is much more respectable. It is sold by specialist insurers such as Aviva, Aegon, Legal & General, LV=, Royal London, Scottish Widows, Vitality and Zurich, typically through brokers after taking advice. Alternatively, critical illness cover pays a tax-free lump sum if you are diagnosed with a serious condition such as cancer, heart attack or stroke.
An income protection policy paying £35,000 tax free a year typically costs between £30 and £60 a month at age 40, rising to between £40 and £70 at 50. Premiums vary according to factors such as your job, state of health and policy conditions. A combined £100,000 life and critical illness policy starts from around £50 a month for a 40-year-old man, rising to about £100 at 50. In all cases, smokers can expect to pay roughly double, as they’re more likely to claim.
While life insurance is better known than income protection or critical illness, people are more likely to claim on the latter two. That’s because while life expectancy is rising, so-called “healthy life expectancy” is falling, with more people falling seriously ill in their 50s and 60s. In the poorest areas, people now only stay healthy until around 50, compared to almost 70 in the wealthiest parts.
Sarah Coles, head of personal finance at AJ Bell, said this trend poses a growing challenge. “People are living longer, but spending more of their lives in poor health. Are your finances up to the challenge?” Planning ahead is key. “It might mean building a bigger emergency savings pot to cover any additional costs, increasing pension contributions or ring-fencing more of your money for later life. This is a huge challenge given the costs.”
Not everyone will reach state pension age in good health, which is where income protection and critical illness cover can prove their worth. Many still resist, said Charles Hart, adviser at LionHart Mortgages & Protection. “I’ve seen all the excuses, including ‘I’m vegan, so don’t get ill’, ‘I do yoga regularly’, and the time-honoured classic: ‘It won’t happen to me’. That last one came from a builder whose colleague was hit by a forklift truck the week before.”
Insurance is another monthly cost when budgets are tight. But it is worth asking: what if it really did happen to me?