Coronavirus – protecting your income

Right now there is a lot of anxiety across the UK – indeed across the world – with the uncertainty of employment, or regular income playing at the forefront of the nation’s minds during the Covid-19 pandemic.

Last night’s announcement by Chancellor Rishi Sunak put one of the final pieces of the jigsaw into place with the unveiling of support for the self-employed. The headlines are:

  • Self-employed people will be able to apply for a grant worth 80% of their average monthly profits over the last three years, up to £2,500 a month.
  • At least half their income needs to have come from self-employment as registered on the 2018-19 tax return filed in January – anyone who missed the filing deadline has four weeks from now to get it done and still qualify.
  • The scheme is open to those who earn under £50,000 a year – up to 3.8 million of the 5 million people registered as self-employed.
  • Unlike the employee scheme, the self-employed can continue to work as they receive support.
  • The money, backdated to March, will arrive directly into people’s banks accounts from HMRC, but not until June.
  • The grants will be taxable, and will need to be declared on tax returns by January 2022.
  • Company owners who pay themselves a dividend are not covered.

For full details on how the self-employed grant will work, please refer to the Gov.uk information here

Turning to the issue of income protection, we have seen the impact of Covid-19 sweeping through the insurance industry causing an unprecedented response from protection providers.

There has been an increase of 42% in income enquiries in the last week alone. This is entirely understandable given that as of this point in time statutory sick pay is £94 per week – regardless of entitlement – though this may change in coming days and weeks.

Insurance providers are sending out updates almost daily, with some providers extending their Online GP access and other support services to all customers regardless of their policy entitlement.

With this focus on protection – especially income protection – coming to the fore, its important to understand the benefits of this type of life insurance, and what your needs actually are.

With that in mind, here are some things to keep in mind when thinking about how best to cover yourself, and how your options may change in the current environment.

Income Protection: The Facts

An income protection policy can be invaluable if you are unable to work long term. It is designed to replace your salary once you have been off work for a set period of time- called the ‘deferred period’. Income protection can pay up to 65% of your monthly wage, tax free, direct to you. You can have an income protection policy and be paid sick pay and claim statutory sick pay together. This means you can remain financially secure whilst unable to work.

Not only does this type of policy secure your income, there are also a host of invaluable benefits designed to help you through a difficult time. These include access to rehab services and physio for injuries, fracture cover that provides a lump sum payment for broken and fractured bones designed to help pay for travel and treatment if you injure yourself but don’t need an extended period away from work.

Income Protection: in the current climate

For most income protection policies, the minimum deferred period is 1 month, meaning you would need to be off work for a month before you could make a claim and start having payments made. This means that most people isolating for 14 days would be unable to make a claim. Some policies do allow you to have a much shorter deferred period, especially if you are self-employed.  In some cases you can also apply for ‘back to day one’ cover meaning once you have been off work for the deferred period, your salary would be back dated to the first day of absence. A lot of insurers understandably are excluding back to day one claims on any new income protection policies due to the current pandemic. If you have an existing income protection policy – it is best to contact your provider to get the most up to date advice and clarify your policy terms and conditions.

If you have any questions about income protection, what your needs are and the insurance solutions available, contact Madelaine Swift – our Protection Adviser on 01865 953 123 or email madelaine.swift@focusorm.co.uk

Protection plans with no investment link will have no cash in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse.

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