Income protection and state benefits
The Employment and Support Allowance (ESA) was introduced in 2008 as part of the Welfare Reform Act, one of the steps to help the government to reach its challenging target of getting one million people of incapacity benefits by 2015. More stringent criteria for claiming and encouraging potential claimants back into work appears to be working.
Since its launch in October 2008 to February 2009 193,800 claims were made of which only 11% were found eligible for ESA support. This could potentially have a major impact to your standard of living in the event of a claim.
If you are considering relying on State benefits your standard of living could suffer as you might have to take a job completely different to the one you were in before incapacity. Plus the basic ESA allowance for claimants over the age of 25 in the first 13 weeks is only £64.30 a week.
We find that most clients feel that the state will look after them should they need to claim and it is very unlikely that you will be incapacitated due to illness for more than six months. Figures from the Department of Work and Pensions (DWP) show that this is more common than people think. In February 2009 there were 2 million incapacity claimants who were unable to work due to illness or injury and 60% of these had been claiming for 5 or more years.
As advisers we are able to formulate a plan designed to run seamlessly with benefits provided by your employer, in fact if your employer pays you for the first 3-6 months of any illness this can dramatically reduce the cost making cover more affordable.
Types of income Protection
There are two main types of income protecion, accident sickness cover or permenant health insurance.
What are the differences between the types of income protection
Income protction normally provides income protection for either 12 or 24 months, this cover can be backdated to day one or commence after 30 days. Payments will cease either on return to work or the expiratin of 12 / 24 months. Permenant health insurance or PHI for short comences paying income after a defered period of time, which can be 4,8,12,26 or 52 weeks, but then continues to pay until the set expiration of cover, retirement or return to work.
So which Income protection plan is best for me?
As with anything it depends on how much cover you need and what your budget is. Permenant Health Insurance can be more expensive as benefits are payable for longer, but this additional cost can be mitigated by chosing a longer deferment basis. What cover your employer provides is also a consideration, as these benefits might enable you to reduce the cost further.
Contact us for more advice on income protection planning
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