BACK YOURSELF – Part 1

You insure against your phone, house, car and travel so why does no one insure themselves, your greatest asset?!

Everyone is always guilty of thinking: “Oh, it will never happen to me. I will always be able to work” but take a look at this…

According to Wesleyan:

“In any given year, 1 in 4 people experience mental health problems” and

“44% work-related illnesses are from mental health ailments”

So don’t be fooled into thinking it might be just a broken leg that would stop you from going to work.

Now, let that sink and then ask yourself: ‘If I stopped working because I fell ill and eventually my employer stopped paying me – how many weeks (or days even) could I live off my current savings?’

I appreciate everyone will have different amounts saved but if you can honestly say that you could live off your savings for at least 1-2 years and have streams of passive income to keep  you tied over then read no further, sign off and I shall see you back here next week 👋

However, if you could only at a stretch manage a couple of months before you’re having to ask friends and family for money, sacrifice your social life and live off tinned beans because you would be so strapped for cash – it is time to change your way of thinking.

Most employers have some sick pay protocol and the MOD and NHS are notoriously good, however, they will not pay out forever.

After which you go on to Statutory Sick Pay (SSP) and that is …. 

….wait for ittttt….

Ta Da! £96.35 per week.

I know.

That would probably buy me 1 coffee in London!

Insurance

So how do you insure yourself?

There are a plethora of insurance covers out there so how do you know which ones to get?

I asked an IFA (independent financial advisor) this last year and they gave me a list:

MUST HAVES

Life insurance – if you have any kind of debt it doesn’t die with you so protect your loved ones with life insurance (it can be as little as £5 a month with your bank!)

Travel insurance – if you travel abroad

Building insurance – if you have a home

Car insurance – if you drive

Income protection – if you have little savings and no passive income streams!

NICE TO HAVES

Critical illness – if you get diagnosed with a critical illness then the provider will give you a one-off lump sum (IF that particular illness is on their list).

Accidental cover – if you are involved in an accident and it meets the (very strict) criteria of your provider then they will give you a one-off lump sum.

Phone insurance, contents insurance, car alloys insurance…you laugh but people do insure the latter!

Income Protection

An insurance cover that pays you each month a certain % of your original working salary if you could no longer work because of a mental or physical ailment.

The provider then stops paying you once you return to work.

I have income protection and believe me, I sleep much better at night knowing that if anything serious happened to me tomorrow I would still get paid every month until I retire.

You can get a FREE consultation with a financial adviser and they can help assess your individual circumstances to provide you with the best product.

(If you are a physician then head over to medicsmoney.co.uk because they recommend IFAs that specialise in doctors)

If you are not a doctor then definitely go to moneysavingexpert.com to compare providers or look at London Victoria (LV=) or Avian for starters.

I have NOT been paid nor get any commission for making these recommendations (…sadly), I am just simply sharing what research I found when going on my quest to insure myself.

Top Tip: Speak to a few IFA and/or companies to get at least 2-3 quotes!

Independent vs Restricted

Now some financial advisers will be ‘restricted’ and others will be ‘independent’.

What does that mean?

It means that those who are an IFA (i.e. independent financial advisers) have access to the WHOLE market.

Whereas, restricted financial advisers can only give you quotes from a restricted pool of providers.

The 2 co-founders of Medic’s Money are very passionate about this and say you must go for an independent adviser so I decided to get a quote from both an Independent and Restricted financial adviser.

It turned out that my restricted financial adviser provided a more competitive price so I went with that one.

Commission vs Fixed fee

A bit like mortgage brokers trying to find you a mortgage for your house from a bank,

Financial advisers might work off a commission-based model or a fixed fee arrangement.

Commission-based usually means that they will not charge their customer (i.e. you) but instead they get paid from the provider if you choose their product.

At first it might seem like a no-brainer to go for someone who will charge you nothing BUT….and there is always a but…

It can mean that they are finding a product that is in the best interest of themselves and not you.

Huh?

In other words, they might scour the market looking for a provider that gives them the biggest commission rather than looking for a product that best suits your needs.

Whereas, a financial adviser that charges a fixed fee means that you pay them and not the lender, therefore, their interests are more likely to then be aligned with yours.

Policy – Own occupation

It is imperative that whatever income protection policy you get, you MUST opt for “own occupation”

That means that if you suffer any mental or physical ailment that prohibits you from doing your EXACT job role currently then the provider will pay out.

The reason why this is important is because if you do not go for ‘own occupation’ and you suddenly injure one of your hands, which stops you being able to do your occupation as a nurse, for example 

Then some providers will turn around and dictate that you could still flip burgers with your good hand in Burger King down the road, therefore, still earn an income and will not pay you.

Policy – Flexible salary adjustments

Also opt for ‘flexible salary adjustments’ so that your salary can increase or decrease by a certain % and not have to be re-reviewed by the underwriters every time.

If underwriters have to review your policy again, it might delay the process because they have to re-evaluate your health conditions, any changes in your employment circumstances blardy blah blah..

This could then actually lead to an increase in your monthly premium so I chose to avoid this altogether by going for the “flexi” option.

Policy – Monthly income

If you do fall sick from either a mental or physical ailment – what % of your original salary do you want to receive each month?

They obviously cannot give you 100% of your working salary because then that would incentivise some people out there to “injure” themselves, not go to work and still be on their normal pay.

Consequently, they will normally only cover from 65% up to 80% maximum.

The more they pay out to you (i.e. the higher the %), the higher your monthly premium will be.

Again, this all comes down to your lifestyle.

Go to my blog on budgeting to find out how much in expenses leaves your account each month.

From that you can then work out how much income protection cover you need to exceed that figure so you’re not living on the breadline when off sick.

Policy – Deferment period

A deferment period is how long you want to wait until your income protection kicks in.

It can be from as soon as 1 week to as long as +6 months!

Why wait?

Because the sooner the provider has to start paying out to you each month, the more they will charge on your monthly premiums.

Hence, why I advocate you have an emergency fund that can extend your deferment period to at least 3 months.

Emergency Fund

As yes, that old chestnut.

I covered the importance of having an emergency fund in my last blog post so worth a read if you haven’t already.

TO DO

Speak to 2-3 financial advisers and companies to get a few quotes for your income protection.

That is all you need to do this week. It’s not a huge ask, is it?

NEXT TIME

In part 2 I will cover why the amount in your emergency fund is directly correlated to your income protection deferment period.

HEALTH FACT 

Free radicals are rogue atoms that cause oxidative havoc in your body and have been linked to ageing and diseases.

To counter this we should eat antioxidant-rich food…like lettuce (who would have thought?!)

DISCLAIMER

This blog is for educational purposes only and should not be construed as financial advice. It is purely opinion-based.

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