If you rely on a monthly pay cheque, nor are you. With that in mind, can you really afford not to have Income Protection Insurance?
You are typically entitled to 60%+ of your salary (up to a maximum of £2,500 in the UK) for up to 2 years, providing you supply the insurance company with proof of 10 meaningful job applications per month and that you haven’t left the country for a period exceeding 3 months.
Now I don’t know about you but giving up between £20 and £100 per month to know you’ve got a guaranteed income of up to £2,500 while you’re unemployed, is a no-brainer. Fair enough it’s not going to be a substitute for your salary if you’re Mr. Flint but let’s be honest, that’s a bit of a first world problem.
Still not convinced it’s a good idea? Here are 10 good reasons why I think you need it:
1. Loyalty is dead
If you want loyalty, buy a dog. Companies have become ruthless with cost management. If they start losing money, you’ll likely find yourself in the cross-hairs.
2. Finding the right job and fit takes time
You want to avoid the situation where you take a job out of desperation when it isn’t what you want to do or who you want work with. It probably won’t last anyway and you’ll find yourself out in the cold again with a more dubious looking CV.
3. Recruiting processes can take up to 6+ months
Making mistakes in recruiting is financially and culturally damaging for companies so they take their time to get it right. Your income needs will not feature on their agenda and when things get busy, recruiting is the last thing on their mind.
4. You want to negotiate your new salary from a position of power
Employers can smell when you’re desperate or bluffing and many will take the opportunity to offer you a smaller salary. Consider the monthly payment for income protection an investment in your future higher salary.
5. Recessions are inevitable
For some inexplicable reason many people are surprised by recessions. They are unfortunately part and parcel of any economy and you will experience numerous in your lifetime.
6. Many expenses are fixed
I'm guessing you don't have the recommended 3 months salary in savings... Rent, utilities, groceries, school fees etc cannot be cut when lose your income. Like a leaky bucket with no inflow, your bank balance will dry up.
7. The upside of the income far outweighs the cost
In today’s world, the risk of losing your job is unfortunately high. As with investing, risks should always be mitigated. In this case, you it is inexpensive to do so and you should consider it a price of doing business, like buying work outfits or your weekly train fare.
8. Fear is debilitating
If you’re constantly worried about finances and potentially losing your job, you are unlikely to perform at your optimum and will probably leave money on the table during negotiations. Having a fallback plan will help restore some balance.
9. It’s hard enough for managers to fire people, never mind knowing you may starve
Most managers will tell you that firing someone is the hardest thing they have ever done. Sometimes it is necessary may not be their fault as it might be ordained from above. Consider giving them the peace of mind that you’ll be fine, they’re only human too. Three years down the line you may re-kindle things too.
10. Redundancy packages in most parts of the world are small
Two weeks’ pay for every year worked is typical. Assuming you’ve worked for 3 years, you only get 6 weeks’ pay. Sometimes it takes 8 weeks for employers to reply to your application email. Do the maths.
There’s obviously loads of options and prices to choose from. Don’t get the cheapest, you will regret it. Read the fine print and lookout for these key items:
- Activation period – if you choose a cheaper option, it can take up to 4 months for the insurance to become valid. Get one that starts soon because you never know what is waiting around the corner.
- Time to payout – some payout from the first month of unemployment, others only pay at month 3 which means you could go 2 months without any income. Get one that pays immediately.
- Payout amount – personally I would go for the maximum. Yes, some of your expenses may be lower when you’re not working but often travelling to interviews and paying for networking events can be quite expensive.
- Number of payments – As mentioned, you could get up to 24 months of payments should it take this long to find a suitable job. This is probably unlikely but another devastating recession could easily make this a reality.
Still think you don't need it? Then I wish you best of luck out there.
Those few of you who embrace the concept of learning vicariously will likely buy Income Protection Insurance. If you end up being victim a similar incident to HSBC’s recent 5,000 employee redundancy spate, you’ll probably be the only person in the office smiling :) I hope that's you.
Has your skin been saved by income protection? Tell us in the comments, it would be great to hear real stories from the trenches.
Look after yourself,
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Photo by Fabian Blank on Unsplash