It pays to guard that golden egg

Income protection saves families from disaster

If you had a goose that laid a golden egg each month as long as you took care of it daily, fed it and watered it, you’d probably look after it really well.

Would you also insure it? So that if it got sick and stopped laying the golden eggs, you would have the insurance payments to live off ?

I would. It makes complete sense to me – the goose is providing your lifestyle, paying your bills.

If you agree with that, let’s try a second question: Do you insure your own income?

So many of us are our family’s goose. We wake and go to work all day, we bring home our golden egg each month in the form of our pay cheque.

But if we couldn’t work for some reason, what would happen to our income? If we are lucky and work for a larger employer, we may to have up to six months of long-term sick pay.

But even then, what happens after that if we’re not well enough to return to work?

How long could you survive without any income before your direct debits start to bounce?

When we’re not well, we need security, peace of mind and time to allow ourselves to recover.

The last thing we need is stress and pressure of rushing back to work, to pay the bills, if we’re not 100%.

And the way we do that is with income protection insurance, which is vital for so many people who have little employer support and have financial commitments to make.

The cover will pay out a tax-free income if you’re unable to work because of an accident, or longterm sickness. It becomes

‘‘

If you’re off sick, how long would it be before the direct debits are bouncing?

payable after a deferred period, also known as a waiting period, which is typically between three and six months.

The payments will continue until you are well enough to return to work, or the policy comes to its contractual end. Think of it like this: You are given a choice of two jobs, identical in all ways except one – the first pays you £38,600, which is the UK’s average salary, but you receive no long-term sick pay benefit; the second pays you £37,400 per annum, but if you’re off work sick they’ll pay you until you can return to work, or until you retire.

The one you’d take is a no-brainer, isn’t it? And that’s how to think about insuring your income.

As a rule, we don’t like insurances, they’re not exciting to have or to arrange. But we need them and, just like car or house insurance, this one belongs on your essential list.

■■To learn more on financial planning, search for The Money Planner podcast.