Report prepared for 17 October 2016 INCOME PROTECTION If you were too ill to work, how would you cope? Every year, almost a million people in the UK suffer an injury or a serious illness that means they can t work for a month or more. * If you were one of them, would you be able to cover your day-to-day bills without your regular income to rely on? Or would you find yourself struggling financially at a time when money should really be the last thing on your mind? Your employer might keep paying you for a while, but there's a limit to how long that would last. You might think the state would provide - but applying for benefits can be a complicated and lengthy process. You'd need to work out what benefits you might be entitled to and then navigate means testing. And in the end, possibly after weeks and months with no income, you could be surprised at the amount you'd be expected to survive on. Income protection is insurance to help you cope with these circumstances. It pays you a monthly income if you're too ill to work, helping you cover your costs and allowing you to focus on your recovery. You can claim if you meet the definition of "incapacitated" in your income protection plan. The statistics in this report are general, and don't take into account your personal medical history. Sample premiums given in this report may vary depending on your medical history. * Department for Work and Pensions, February 2014 The information in this report has been provided for you by Royal London and the specifics about how income protection works are based on Royal London's Income Protection cover. Royal London is the UK s biggest mutual life, pensions and investment company. Royal London plans don't have a cash-in value at any time. T: 01234 567890 E: example@testadviser.com
The facts about the risks you face Most people take out life cover in case they die prematurely - but the biggest risk they face is long-term absence from work. The chart below shows that within the next year, a -year-old man, who works in the type of industry you are in, is 2 times more likely to be off work for three months or more than to die. How the risk of long-term sickness absence compares to death DYING ISN T YOUR BIGGEST RISK 12 times 2 times 2 times 1 times WHY INCOME PROTECTION MATTERS Illness or injury that stops you from working for a while is a much bigger risk than sudden death. Almost Death 1 month off sick 3 months off sick 6 months off sick 12 months off sick Source: Hannover Re, March 2016. These figures have been produced based on their interpretation of the Institute and Faculty of Actuaries Continuous Mortality Investigation insured lives incidence rates together with their estimated view of future trends. 1M Delaying cover could be a costly mistake people every year are off work for a month or more as a result of serious sickness or injury. 1 Injury or illness could happen any time in your career. National sickness absence rate in the UK 30% aged under 25% aged -49 42% aged 50-64 3% aged 65 *Source: Department of Work and Pensions, February 2014 The information in this report has been provided for you by 1Royal Department London. for Royal Work London and Pensions, is the UK s February biggest 2014 mutual life, pensions and investment company. T: 01234 567890 E: example@testadviser.com page 1 of 7
You're at risk whether you work with dynamite or sit at a desk Long-term absence from work is remarkably common. In England last year, longterm sickness affected people working in all industries. Long-term absence in England by industry IT CAN HAPPEN TO ANYONE 2% Energy & water 12% Manufacturing 4% Construction 17% Distribution, hotels & restaurants 8% Transport & communication 12% Banking, finance & insurance, etc. 3% Other services 41% Public admin, education & health HOW WOULD YOU COPE FINANCIALLY? It happens across all industries to people of all ages for all sorts of reasons. 23% Source: Department for Work and Pensions, February 2014 The most common causes of long-term absence of Royal London s claims for Income Protection in 2015 were for cancer. 2 Over half of the long-term sickness absences in the UK are due to musculoskeletal conditions - such as a bad back, broken bones or strained ligaments - or mental health conditions like depression and stress. Other reasons for absence can include cancer, stroke or heart attack. Causes of long-term sickness absence in England 33% Musculoskeletal 19% Mental health 48% Other including prefer not to say Source: Department for Work and Pensions, February 2014 2 Royal London UK intermediary protection business claims paid (1 January to 31 December 2015) T: 01234 567890 E: example@testadviser.com page 2 of 7
How sickness could affect your finances If you re off work sick, your employer might pay you sick pay for a while. And once that runs out, you may be entitled to Statutory Sick Pay of 88.45 a week for up to 28 weeks. So it s worth checking how long your employer would pay you for before you had to rely on the state. Your monthly shortfall if you had to rely on the state 2,500 2,116.72 Monthly outgoings Source: www.direct.gov.uk, June 2016. 383.28 Monthly Statutory Sick Pay Monthly shortfall equivalent to 85% Welfare reform is moving fast - but your benefits might not Applying for benefits can be a lengthy process, taking up to two weeks to get the application form for tax credits and six weeks for payments to start. 4 You may also be entitled to other benefits, such as Employment and Support Allowance or Universal Credit, depending on your circumstances. State benefits are changing, depending on where you live in the UK you may be entitled to different benefits visit direct.gov.uk for more information. But it's worth remembering that state benefits aren't designed to keep anyone in the lifestyle they're used to. THE COST OF CANCER BEING OFF ILL CAN BE A COSTLY BUSINESS You might think staying at home off work would reduce your monthly outgoings. But you might need to pay for medical treatment or to make alterations to your home. 570 Four out of five (83%) cancer patients are hit by an additional cost of around 570 a month. 3 3 Macmillan - Cancer s Hidden Price Tag Executive Summary, April 2013. 4 www.gov.uk, August 2015. T: 01234 567890 E: example@testadviser.com page 3 of 7
How long would your hard-earned savings last? Would you rather rely on your savings to get by? If you used your savings to pay monthly outgoings of 2,500, here's how that would look after a year. The impact on your savings if you relied on them for a year off work TAKE COVER KEY POINTS TO CONSIDER You can choose: 1 Month - 26,000 2 3 4 5 6 7 8 9 10 11 12 And there are no guarantees on how soon you d be back at work earning. With income protection, you can keep on top of day-to-day living expenses and protect your savings for the future. How does income protection work? No one wants money worries on top of injury or illness. Income protection pays you a regular income if you can t work. The payout is tax-free. The difference income protection could make to your monthly shortfall how much cover you take out, up to 55% of your pre-tax earnings how long you re insured for how quickly payments would start once you were off sick how long payments would continue for if you remained unable to work 88.45 2,500 2,116.72 383.28 209 2,291 Monthly outgoings Monthly Statutory Sick Pay Monthly shortfall equivalent to 85% Income Protection: 55% monthly pre-tax earnings Monthly shortfall equivalent to 8% a week for 28 weeks is the current statutory sick pay amount. Statutory Sick Pay from the government would pay you a set amount for up to 28 weeks. Income protection would pay you the amount you've insured, a maximum of 55% of your pre-tax earnings. The monthly payments would start after a set number of weeks (the deferred period) you choose when you take out income protection. Income protection would give you a monthly income for as long as your payments are scheduled to continue. It s tax-free too. Once you go back to work of course, income protection will stop paying out. T: 01234 567890 E: example@testadviser.com page 4 of 7
Choices you make can affect the premium you pay If you can t do your own job because of an illness or injury, and meet the definition of incapacitated in your plan, you'll receive a pay out for as long as you meet the definition and your payments are scheduled to continue. You can decide the amount of time between you stopping work and getting your first payment. This is called the deferred period. It makes sense to start the payout from when your employer would stop paying you sick pay. And you can choose how long you want your payments to last if you claim: you could insure for payments to continue for one or two years, or for as long as your plan is in place. This plan doesn t have a cash-in value at any time. Cover could be more affordable than you think Here's an example of what it might cost to insure 55% of your 50,000 pretax earnings. This is based on your age, your occupation and that you're a nonsmoker. It doesn't take account of your medical history, though, so if you've had or still have health problems, the premiums could be higher. Certain conditions could be excluded from your plan or you may be unable to get cover. Usually cover can last until you're 70, but depending on your occupation you may only get cover up to age 55. Tailor your plan to suit your needs and your budget INCOME PROTECTION TO SUIT YOU KEY POINTS TO CONSIDER Check how long your employer would continue to pay you if you were off sick. That s probably the deferred period you should pick for your income protection. What age do you plan to retire at? What premium can you afford to pay? With a 3-month deferred period, insuring you to age 70: 75.54 A MONTH Or you could insure for five years only and a 3-month deferred period: 19.30 A MONTH 55% of your annual pre-tax earnings is the maximum you can insure. And if you change the deferred period to 6 months: 68.03 A MONTH Or you could keep the insurance to age 70, with a deferred period of 3 months, but schedule payments to stop after 2 years of paying out: 47.04 A MONTH Sample quotes include 2.60 plan charge and waiver of premium. T: 01234 567890 E: example@testadviser.com page 5 of 7
The longer you delay, the more you might pay This chart shows the difference between how much you might pay if you take out income protection now, and if you wait a few years to take it out. The premiums are based on all your details except your age staying the same, and insuring you until you're 70. They assume you would cover 55% of your pre-tax earnings for the full term and that payments would start after three months. If you have medical conditions, these would be factored into the premium at underwriting stage, and could increase the amount you pay. Your monthly premiums depending on your age when you take out income protection YOUR FINANCIAL BACK-UP PLAN SECURE YOUR PRESENT AND FUTURE 185.72 224.01 Income protection can pay you a monthly income if you re off work because of an illness or injury. It s tailored to your individual risks your job, age, health, if you smoke and you can make choices to tailor your plan to suit your needs. 141.95 75.54 102.78 43 44 48 52 56 Source: Royal London Personal Menu Plan, Income Protection, August 2016. Sample quotes include 2.60 plan charge and waiver of premium. is the average age of the people who claimed on their Royal London Income Protection last year. 6 6 Royal London UK intermediary protection business claims paid (1 January to 31 December 2015) T: 01234 567890 E: example@testadviser.com page 6 of 7
A Helping Hand to get you back on your feet With Royal London Income Protection, you also have access to Helping Hand. This gives you practical and emotional support to help with your recovery and getting back to work. There s no extra cost and it s not just when you make a claim Helping Hand is there for you and your family (spouse/partner and children) to use as soon as your plan starts. The service includes access to a range of practical and emotional support, such as: Your own personal nurse adviser from independent care advisory service RedArc A face-to-face second medical opinion, if you want it Oncology nurses to provide support for cancer patients and their families YOUR NEXT STEPS It s always good to take professional advice If you d like to find out more about income protection and how it could help you, contact me today. Be prepared for some medical questions - telling your insurer about medical conditions is important to get an accurate price. It s also helpful to know how long your employer would continue to pay you if you were off sick - this can help us choose the right income protection for you. Speech and language therapy Help to manage stress and depression An Adviser Access to counselling, physiotherapy and complementary therapies Helping Hand also gives you access to medical, career and legal helplines so you can get independent advice whenever you re going through a difficult time. 01234 567890 example@testadviser.com *Source: Department of Work and Pensions, February 2014 The information in this report has been provided for you by Royal London. Royal London is the UK s biggest mutual life, pensions and investment company. page 7 of 7