The forgotten Insurance when you have a Mortgage
It is a sad fact that while most of us are quite happy to insure our car, our house, our travel arrangements – even our mobile phones – to their full value, few of us take quite as much care over our own health and that of our loved ones. According to figures produced by the Association of British Insurers (ABI), 19.6 million of the UK’s 26.6 million households had contents insurance in 2016/17, whereas only 5.3 million had whole-of-life assurance, 0.5 million had term life insurance and only 0.3 million had income protection insurance.
Why Income Protection? It is true that not everyone needs cover. Life insurance, for example, pays out a lump sum on death. For a family with small children, the need for this cover is obvious. Remove the family’s main breadwinner, for example, and it would not take very long before the financial stability of the family was seriously affected. However, if you are single and have no financial dependants, you might consider it a waste of time leaving a lump sum that is unnecessary and will just cost you money to fund. Nevertheless, if you are single, you should still consider what would happen if you fall ill or have an accident and are unable to work. The state benefits available are only intended to provide a safety net. They will not help you keep up a lifestyle of holidays and eating out or make any inroads into repaying a mortgage.
The following are some of the points to consider when assessing your Insurance needs:
• Do you have young children or others who depend on you financially?
• How old are your dependants?
• Will your dependants be heading to university?
• Do you pay school fees or nursing-home fees for others?
• Will any current dependants become financially independent and if so, how soon will that be?
• Do you have debts (including a mortgage) that your beneficiaries could not manage, even if it were only for a short time?
• Do you have investments that might provide an income if you were unable to work?
• Do you have any assets that could be sold if you were unable to work?
• Would you need to move house if you were less mobile?
• How do you travel about?
• How far are you from friends, relatives and local amenities?
Income Protection Insurance Regardless of whether you are single or have several financial dependants, your income is likely to disappear completely if you are suddenly unable to work. This will have a direct impact on both you and those around you. Income protection insurance (IPI – formerly known as “permanent health insurance”) is less well known than life assurance but is just as important. In the event that you have an accident or contract a serious illness and are unable to work, IPI is designed to cover a proportion of the income you lose. This income is paid until the end of the policy term, or until you are able to return to work, whichever comes first. Consequently, while you are rehabilitating or coming to terms with changes in your life, you can be reassured your financial position will be unaffected and that the bills will continue to be paid.
This type of policy can be of particular benefit if you are self-employed or if your job does not come with any or limited sick pay or protection scheme benefits.