Are people doing enough to protect their income?
With the economy slowly emerging from the recession it is no surprise that the purse strings of the treasury are much tighter than they have been in the past regarding state benefits. Statutory Sick Pay (SSP) and Employment and Support Allowance (ESA) are no exception to this, but how many of us know the current levels of these benefits and how they work?
SSP and ESA are never going to be an accurate reflection of the lifestyle most of us have worked hard to achieve. For most working people it is incomprehensible to be expected to maintain our standards of living on such a low amount.
Let’s look at the facts:
If you are employed, you would be entitled to receive SSP from your employer after 3 days of absence from work; a payment that even your employer can no longer claim back from the government. The current level of SSP is now £88.45* per week (or £353.80 per month) and lasts for a maximum of 28 weeks.
However, if you are self-employed and, provided your N.I contributions are up to date, then you do not qualify for SSP but instead would have to apply for ESA. The level of ESA is currently set at £73.10* per week (or £292.40 per month) resulting in a significant drop in income and an onerous application process and a degree of qualification that the state can use to ascertain if an individual really isn’t fit enough to work.
Consequently, small businesses, who are considering providing staff with their own income protection policy, could potentially save paying out thousands in unbudgeted sick pay costs which now cannot be reclaimed as their policy will pay staff a monthly income, on top of SSP, for a small monthly premium.
It is clear that people are beginning to recognise that we are on our own when it comes to staying afloat financially during periods of sick leave, what little help the government offer is not designed to protect you for the long-term and therefore it is prudent that we all have a safety net in place. It is not surprising, therefore, that Income Protection sales have been rising in recent years.
So what is stopping people from protecting the one thing that pays for everything?
It seems that there is a lot of confusion and cynicism surrounding Income Protection Insurance (IP) which is largely down to bad press around Payment Protection Insurance (PPI) and a lack of trust for financial institutions in general.
Cynicism about insurers stems from past scandals such as the mis-selling of PPI. These plans were cheap, unsophisticated, riddled with exclusions and mis-sold on an industrial scale. Since 2001 the Financial Ombudsman Service – which mediates between financial companies and disgruntled customers – has been flooded with over 1.3 million complaints about ‘PPI’.
By contrast, income protection cover has a good track record of paying out claims. Claim paid rates across the industry are often well above 90%.
Cost of cover can also be an issue; however, the mistake that a significant number of people make is to automatically look to put as much cover in place as possible without first considering the actual cover they would actually need. Minimal state benefits will contribute and if you are seriously ill your lifestyle is highly likely to change. It is unlikely therefore that many of us would actually need the maximum level of cover available. If Income protection is a serious consideration then consider a budget based approach. Work out the level of monthly contribution you could afford to protect your income and find out how much cover you could get for your budget. There are many ways to alter the premiums in line with your budget and providers are more than happy to discuss options and “tailor” a suitable level of cover around your budget. Consider that most mortgage companies and lenders in general would be more responsive to a borrower that is able to make proportional payments to one that makes none at all, so if your budget doesn’t cover the exact level of protection you need then at least think about what the alternative would be without protection at all.
*DWP, April 2015