Protect your Income

In the current economic climate, it seems no job is secure and more and more of us are concerned about our financial future if we were made redundant.

And while no one likes to think about losing their job, it can help if you have some form of redundancy protection.  That way you'll be better able to face whatever the future brings.  This is especially important where you have monthly mortgage, loan and credit card repayments to meet.

There are Redundancy Protection options that can reduce your financial stress should you lose you job.  They offer a monthly, tax-free sum that will enable you to continue servicing your debt repayments while you look for a new job.

Does the Government help?

Statutory redundancy pay is an employer’s obligation only to employees who have been employed for more than two years and the entitlement is only between half and one and a half week’s pay for each year of service (depending on your age). Click here to calculate your statutory redundancy entitlement.

You may also be eligible for Job Seeker’s Allowance (click here for the government leaflet on job seekers allowance), which pays around £60.50 per week along with other benefits. 

Under Department of Social Security rules, home-owners who bought their property after 1st October 1995 have to wait nine months before they receive help with their mortgage interest payments from the government.  And, even then, they must be in receipt of Income Support or the Job Seeker's Allowance, so their savings must not exceed £8,000. And benefits only cover interest on the first £100,000 of the loan.  Borrowers who took out their mortgages after 1995 will receive no State help at all.

If you work for a large organisation, you might be covered by an employer’s redundancy scheme. This is likely to have been negotiated between the company’s management and the relevant trade union or staff association some years previously. Some schemes could indeed tide you over until you are able to find alternative employment; others might not. Again, your entitlement under such a scheme is likely to be determined by length of service. It's a good idea to find out exactly what are the terms of any such scheme

So really the best redundancy protection lies in your purchase of some form of redundancy protection insurance policy.  The money received from the insurance policy should not be treated as income by the DSS provided the money from the insurance is used to pay monthly payments on a loan, credit card, mortgage, or similar agreements.

What types of income protection are available?
Often payment protection will be offered attached to your mortgage or credit card and often these policies are not as competitive as they should be.

Consequently it's best to shop around for the best income protection deal independently. Don't assume that just because you are getting a good deal on a loan or credit card that this company's insurance will be the best too. Take a full overview of the market and SHOP AROUND. 

Income protection is offered in the form of general income protection policy, a mortgage payment protection and a loan payment protection

General income payment protection 
 

A general income protection will cover rent/mortgage, personal loan, credit card, insurances and utility bills.  Income protection insurance would allow you to take out a policy for a fixed premium each month depending on how much you want to protect and your age.  Most insurers will only cover 50%-65% of your gross income, to cover rent, personal loan payments, credit cards, insurances and utility bills. 

A search on the 18th September 2008 showed that with a gross salary of £3000 per month which will provide an protected monthly income of £1800 for a 36 year old would cost between £54.16 with immediate start and 1 years cover and £38.16 with a 180 day delay and 1 years cover.

Mortgage payment protection insurance (MPPI)
 

Mortgage payment protection insurance covers your mortgage payments in the event of your being unable to work due to an accident, sickness or unemployment, so it is also known as ASU.  This will have been offered when you take out your mortgage but only 1/3 of us take it out then.  It is also more likely to be cheaper if we shop around for the best independent product.  Remember that if you have remortgaged at any point and increased the size of your mortgage, you will also need to increase the level of MPPI cover.

A search on the 18th September 2008 showed that MPPI can be found at £1.60 per £100 monthly mortgage payment for a 20 year old rising to £3.55 per £100 monthly mortgage payment for a 49 year old.  So to protect a £1000 per month mortgage for a 49 year old would cost £35.50.

Loan payment protection insurance

Loan insurance would give you the money to continue meeting your loan repayments and not get into debt. This is offered when you take out the loan and often these policies are not as competitive as they should be. Consequently, it is best to shop around for the best loan payment protection deal independently.

A search on the 18th September 2008 showed that loan protection cover can be found for £3.95 per £100 borrowed, so for a £1000 loan it will cost you £30.95 to protect your loan payments alone.

How do I choose the right policy?
As with all insurance, you do need to consider carefully which type of unemployment insurance most suits your requirements.

Compare the terms and conditions as well as the quotes for the cheapest premiums. And do be aware of any exclusions which could render you ineligible to claim. While these do vary from provider to provider, typically you need to take extra care to see whether you are eligible if you are in part time employment or are self-employed. Those of retirement age will also not be eligible for cover.

Just as the exclusions vary, so will the cost of payments so shop around.

What to consider for your policy?

Before you buy an income protection policy it's vital to consider whether a policy is really right for you and whether the level of cover will meet your needs. Here are some important things to consider.

Age
Most policies will insure anyone aged 18-65, however, there are specialist policies available for the under 50s. If you are under 50 you are deemed less likely to make a claim and consequently your premium should be cheaper.

Payment period
Most policies will only pay out for 12 months but this can vary.

Payment excess

Some companies will offer you "excess" that will cut your premium. This means that they will not pay out for a set period - perhaps 30 or 60 days. The longer the excess, the less you pay on a premium, but consider how long you can afford to go without these debts being repaid on your behalf. There are many good policies available that will pay out from the time your problem begins, ie no excess.

Will they pay an enhanced rate
Interest rates on a loan or credit card can fluctuate. Make sure your insurer will cover any potential rise.

Introductory periods
Some insurers will not pay out for the length of an introductory period after taking the policy, which can be as much as three months.

Unemployment restrictions
Is there anything that could stop you from making a claim if you were to lose your job? For example, is unemployment a regular occurrence in your chosen profession or do you have a seasonal job?

Short-term employment
Some insurers might suspend payments if you are able to get short-term work and restart them once this period ends. Not every insurer will do this.

Above all else, as with any form of insurance, thoroughly read the terms and conditions of your income protection policy. Make sure there are no loopholes and that you will not be short-changed in the event of a claim.

The small print, what to look out for in your policy?

Before you buy a policy, be sure to consider the following:

Terms and conditions
Make sure you qualify for cover against the policy's terms and conditions. Are you within their age bracket (usually 18-65)? Are you working 16hrs/week in full-time employment and usually have you been employed for six months or more? Do you live and work in the UK? If the answer to all these questions is "yes", then you are likely to qualify, but always check as policies vary.

Non-permanent contracts
Some insurers will accept you if you have been working for more than 12months, but be sure to check.

Redundancy and misconduct
 

Bear in mind you are not likely to be covered if you are fired from your job due to your own misdemeanour. Consequently, before buying a policy, consider your companies redundancy package - it might be substantial enough that you don't need cover.

Self-employed
You must inform the Inland Revenue if you cease trading. Some, but not all policies will cover you if you are forced to dissolve your business, but not if you do so on a voluntary basis.

Sick pay
Will your company pay you during a long-term illness? If so you could limit your cover to exclude sickness, therefore cutting your premium.

Other insurance
 

Some other insurance policies, including health insurance, might cover a proportion of your salary rendering further cover unnecessary.

Pre-existing conditions
A number of policies will not offer cover if you already have a health issue. Be sure to check the terms and conditions and if in doubt, ask.

Waiting period
There is a waiting period before you can claim on all redundancy insurance policies and this will vary from provider to provider and can be anywhere between the 31st day and 90th day of being continually out of work. Some redundancy insurance policies are backdated to the first non-working day  and would then continue to payout for every month you continued to be out of work for up to 12 months, though some policies offer cover for up to 24 months.

Check the exclusions
You do have to make sure that a redundancy insurance policy would be suitable for your needs as there are exclusions which can stop you from being eligible to make a claim.  These include only being in part time employment, being of retirement age and suffering from a pre-existing medical condition at the time of taking out the policy.