With strong job growth reported by the Recruitment and Employment Confederation (REC) for November 2010, UK residents who have been holding their breath over the state of the economy might be tempted to finally breathe a sigh of relief. Such a sigh, however, might be ill-timed and ill-advised. After all, one of the most common features of the global economic meltdown has been repeated claims by various governments around the world that 'it's almost over', just in time for some new disaster to strike. If you don't believe that, ask the Greeks how they're feeling about now.
In such economically uncertain times, income protection insurance can be especially helpful, particularly if you work in an industry that has already experienced a series of ups-and-downs due to the volatile recession.
Some people may be tempted to rely only upon government benefits, feeling they cannot afford income protection insurance. After all, they argue, they can barely afford their flat right now, and a gigantic global recession doesn't seem like the right time to add another monthly bill. Nevertheless, there are some good reasons to consider income protection insurance; here are five of them.
Reason #5: You Can Only Reduce Expenses So Far
A recent survey by Scottish Provident's Financial Safety Net found that nearly 60% of Brits don't have income protection insurance, yet more than 30% would be forced to reduce their expenses should anything happen to the household breadwinner.
How far could you actually reduce your expenses while still keeping your home, your car, and your standard of living? Imagine a sudden loss of pay, with state benefits only paying a fraction of what you normally earn.
How long would it take before you would burn through your savings? Consider that finding a new job in today's economy is not easy at all, and may take you many months. 'Tightening your belt' is one thing, but if you can't reduce expenses enough to survive for more than two or three months, you need to consider income protection insurance.
Reason #4: Government Benefits Alone Are Inadequate
The typical Jobseeker's Allowance for single people over the age of 25 is £65 per week, or about £260 per month. In other words, the Jobseeker's Allowance is not designed to completely cover all of your bills for an extended period of unemployment. Jobseeker's Allowance is meant to support your basic needs and supplement your savings, but it's not enough to completely care for your needs.
If you can cover expenses by tightening your belt and seeking government assistance alone, then by all means do not seek income protection insurance. However, if it would only take one or two months of unemployment to eat up your savings even on a strict budget, you definitely need to consider additional protection.
Reason #3: Combining Income Protection with Government Benefits Works
Although government benefits and a strict budget alone are typically not enough for the average British family, adding income protection insurance to the mix usually is. By combining Jobseeker's Allowance with private insurance coverage and a tightened budget, you will almost certainly manage to cover all your basic expenses until you get a new job.
Reason #2: Peace of Mind is Worth the Premium
When things are going well, it seems as if insurance premiums are an unnecessary, burdensome expense. On the day you lose your job, however, the insurance premiums you paid all along for income protection suddenly seem a mere trifle. Your peace of mind is worth the premium.
Reason #1: Who Can Predict the Future?
The number one reason to purchase income protection insurance brings us back around to the beginning of this article – the precarious, uncertain future of the fate of the global economy. Perhaps a full recovery will come sooner than expected; Greece and Ireland will pay back their debts in full, banks will no longer be owned by the taxpayer, and real estate will once again be a valuable investment. Perhaps, however, none of this will happen anytime soon. Perhaps the job market will get worse – again – before it gets better.
Consider that even if the job market stabilizes, or you yourself find a steady, high-paying job, there is still the ever-present element of uncertainty. Without warning, sickness could strike you or a family member, and you could be forced to walk away from a lucrative career. New company management might decide your position is redundant, and a stable job could quickly become unstable.
In short, you never know what the future brings. If you have been asking yourself 'Do I really need income protection?', think about the five reasons in favour of income protection insurance above. Do any of these reasons apply to your own situation? If they do, the answer to your question is 'Yes'.