Young people in the UK take a gamble with their finances by ignoring the importance of income protection insurance
Since the recession hit, many young people have been struggling to find jobs once they graduate, and those who do may still find themselves struggling to make ends meet. With the cost of paying rent or a mortgage, running a car, paying utility bills, loans and credit cards, many people will find there is very little left over at the end of the month to put into savings. However, despite these financial obligations and the highly-pressured employment market, a worryingly high proportion of people under the age of 25 still do not have any kind of protection in place should they have to take long term sick leave.
One explanation for this could be that people assume their employer will continue to pay them a full-time wage for as long as they require if they were to suffer an accident or fall ill and be unable to work. A recent survey by PG Mutual^ found that nearly 30% of people questioned had no idea what their employer would pay them if they had to take sick leave, or for how long. There appears to be an assumption that their employer would continue to pay them at their current pay rate – however, this is not always the case, and is becoming less and less likely as companies look to save money in the current climate.
The reality of being struck down by an unexpected illness or injury is that your employer will most likely only pay you for a set amount of time – often the minimum that is required by law, especially if you are just starting out within a company. This means that if you have to take more time off to recover, your salary will reduce to the meagre amount provided by State Sickness Benefit – currently just £86.70 per week, or £346.80 per month.**
While many young people may be more worried about immediate financial concerns such as paying the rent and the food shopping bill, it is exactly these types of outgoings that most people would struggle to cover if they were to lose their income. This, is in addition to the other debts many under 25s have, such as car loans, credit cards and store cards, as well as young families to support, means that a loss of income due to being unexpectedly struck down by an illness or an accident would leave most young people in real financial difficulty.
Another reason often cited as to why people don’t have income protection insurance is confusion with life and critical illness cover. The difference is that life insurance will only pay out a cash lump sum when you die. Critical illness cover is similar to income protection, but instead of providing a regular monthly income, it only pays out a cash lump sum if you're diagnosed with one of a number of listed critical illnesses.
Instead, income protection is designed to cover a wide range of illnesses or injuries, where the individual requires a regular, long-term replacement income to maintain their lifestyle, pay their bills and cover the cost of paying any other insurance policy premiums whilst they complete their recovery.
What is surprising when considering these figures is that income protection is often cheaper for under-25s. Despite most UK young adults having insurance in place for everything else, from their homes and cars to their iPhones and pets, little consideration seems to be given to how people would cover the cost of maintaining any of these things without a regular income.
Anecdotal evidence also suggests a lack of understanding about income protection as a product and what it will cost – many people view it with suspicion due, to confusion with PPI (Payment Protection Insurance), whereas others fear the cost to be prohibitive. In reality, all good income protection providers will offer a level of cover for whatever the customer can afford, as well as transparency as to claims rates.
Mike Perry, Chief Executive of leading income protection provider, PG Mutual, explains, “At PG Mutual, we have seen an increase in the number of people taking out income protection over the past year, but there still seems to be a large number of people who don’t understand what it is, or appreciate the importance of it. The problem with having an accident or falling ill is that no one wants to think about it, but if it happens, it’s too late to get cover. There’s also a common misconception that if you have critical illness and life cover, you’ll be covered for this eventuality, however, they are in fact, completely different products.
People can assume that insurance is a waste of money, or that it will be too expensive to add on to their current monthly outgoings – which is why we developed our ‘Quick Quote’ system. This allows people to go online and enter the amount they think they could afford to spare per month – even if it’s just £10 – and calculate how much cover they could then get for this amount. Almost everyone that takes a look is surprised at how much protection you can get for such a minimal amount per month.”
The added benefits of taking out income protection insurance while you are still under the age of 25 include:
This article was kindly provided by PG Mutual:
To find out more about income protection insurance and whether it would work for you, you can call PG Mutual’s friendly team on 0800 146 307, or, if you would like to have a look and see how little cover could cost you, you can CLICK HERE and try the ‘Quick Quote’ tool. Plus as a VetGrad member you can save 25% off your premium by using code"Vgrad13".
*Source: LifeSearch, February 2010.
**Calculated on a 4-week month, DWP Website, July 2013
^PDA Survey, 2012