The need for a financial safety net if you get diagnosed with a serious illness was sadly highlighted by the case of television celebrity Jonnie Irwin. The father of three spoke about his regret at not taking out financial protection when he had the opportunity, which meant he then had to work despite being diagnosed with terminal cancer.
According to the Independent, the host of Channel 4’s A Place in the Sun and the BBC’s Escape to the Country television shows said that not having financial protection had been a “major source of stress”.
It’s a sad reminder of why financial protection is the bedrock of a good wealth strategy. Being able to maintain your lifestyle if you can’t work due to illness allows you to concentrate on getting better, without the added stress caused by financial problems.
If cover is something you are considering, or would like to know more about, read on to discover more about protecting your income if you’re diagnosed with a serious illness. Before you do, let’s consider what might happen if you don’t have cover in place before a diagnosis.
Statutory Sick Pay (SSP) is unlikely to meet your needs
If you are unable to work due to serious illness or an accident, your employer is not obliged to pay you. If they do it’s usually for a limited period only, such as three or six months. After this the amount they pay you could drop significantly or stop altogether.
While you may be able to claim Statutory Sick Pay (SSP), in 2022/23, this amounts to just £99.35 a week for 28 weeks. As a result, you might need to use your savings or investments to meet your financial obligations, which could quickly reduce your wealth.
Furthermore, it could put your long-term financial security and retirement plans at risk if, for example, you cannot maintain your pension contributions. The good news is that taking financial protection could help you and your family maintain your lifestyle if you’re unable to work due to ill health. Let’s look at this in more detail next.
Financial protection could allow you to maintain your lifestyle
Broadly speaking, if you’re diagnosed with a serious illness, financial protection could provide a lump sum or income if you’re unable to work, which may allow you to maintain your lifestyle. Despite this, research by Nationwide reveals that only 27% of people have income protection.
The study also found that like Jonnie, 60% of people who are ill continue to work because of money worries. With the right protection in place, you’re more likely to be able to make a full recovery before returning to work.
So, with this in mind, let’s look at the different types of cover that could help you meet your financial obligations if you cannot work due to illness.
Critical illness cover
Critical illness cover (CIC) pays a tax-free lump sum if you’re diagnosed with, or need treatment for a serious illness. The illnesses you would be covered for will depend on the protection you take, although it typically covers cancer, a heart attack or a stroke.
The cost of CIC is determined by:
- Your age
- Your medical record
- Your family’s medical history
- How risky your job is
- How much income you would like.
The money could pay for private medical treatment, or medication not available on the NHS. Alternatively, it could repay debts, modify your home if necessary, or provide an income.
As your age is used to calculate the cost of your cover, the earlier you take it, the less the premiums are likely to cost. Please remember, you’re unlikely to be covered for pre-existing conditions.
Income protection
Income protection typically pays a tax-free income every month that could help you meet your financial commitments, such as mortgage repayments and pension contributions.
Typically, income protection pays around 60% of your regular income and continues until you return to work, retire or the cover ends.
The cover pays out after a deferred period, which is the period between stopping work and you receiving the cover. Dovetailing your deferred period into your company sick pay could ensure that you have a continuous income.
The cost of income protection is typically calculated using the same factors as CIC cover, although the longer the deferred period, the lower the monthly premiums are likely to be.
You might want to consider both
As you can see, financial protection provides peace of mind and helps ensure your financial security if you’re diagnosed with a serious illness or have an accident. That said, they offer different things, which means you might want to consider having both.
Having an income means that you meet your overheads, while a lump sum could, for example, pay for treatment that might provide a quicker recovery. This may be particularly important if you’re self-employed and don’t earn if you’re not working.
Get in touch
While we may think that nothing will happen to us, Jonnie’s story highlights that we never really know what tomorrow holds. This is why having financial cover is essential to good financial planning.
One reason you may not have taken cover out is because of several common, yet misleading, myths that exist about financial protection. If this is the case, read our blog to learn more about four of these myths and why they don’t stand up to scrutiny.
If you would like to discuss how you may benefit from creating a financial safety net for you and your family, please contact us on hello@ardentuk.com or call 01904 655 330. As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high quality service.
Please note
This blog is for general information only and does not constitute advice. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The information is aimed at retail clients only. Financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
