Steve Bryan
|Director of Distribution and Marketing
With nearly ten million jobs being put on furlough and almost three million claims being made under the Self-Employment Income Support Scheme1 during the coronavirus pandemic, awareness of how unexpected events can wipe out our income has arguably never been higher.
But what happens when the support ends? With so many people turning to the Government for help, are we in danger of creating a false picture of over-reliance on the state to help us when we are unable to work?
The Government’s financial support package during the coronavirus pandemic was an exceptional response designed to help UK workers in exceptional circumstances, replacing up to 80% of salary at the peak of the pandemic. But this level of income replacement is far higher than is normally paid should we be unable to work due to illness or injury. And despite the growing awareness of our financial fragility, how many of us really consider what life would be like if we had to live off benefits such as Universal Credit?
State benefits are designed to exist on not live on!
Average employee earnings reached £585 per week in April 2019, equivalent to roughly £30,420, according to data from the Office for National Statistics2.
This is more than the £594.04 monthly standard allowance on Universal Credit that a couple aged 25 or over could receive, and far higher than the £409.89 a single claimant aged 25 or over could get3. The government temporarily increased Universal Credit benefit to these figures for 12 months from April 2020 due to the coronavirus crisis, but this extra support could be removed.
Mind the red tape
Inevitably with government funding, the qualifying criteria means assessing eligibility can be extremely complex.
Some of the many stipulations relate to savings and income. If an individual, or one of a couple, has savings of more than £6,000 or receives other income, then Universal Credit payments are reduced, and applicants are entirely ineligible if someone has £16,000 saved up3.
A study by the New Policy Institute found that 46 per cent of the 260,000 income protection (IP) policyholders it analysed would not be eligible for Universal Credit due to their personal circumstances4.
This means tens, or even hundreds, of thousands of people seriously need to consider what they would receive from the state if they could not work.
It’s time to take control
Everyone needs to take greater responsibility for their future financial health, which includes considering how they could afford their outgoings if they were unable to work.
With IP, policyholders can protect a much larger proportion of their income than they would receive under state benefits. This provides policyholders with a greater financial cushion should they experience a drop in income due to illness or injury.
IP doesn’t penalise people for responsibly building up a savings pot and payments can start on the first day of an illness, unlike Universal Credit, where the first payment routinely takes five weeks to arrive.
Beyond this, IP policies are far more flexible than Universal Credit. Payments can be made until claimants are 70, whereas receipt of Universal Credit stops at the individual’s state pension age. In addition, IP claims are only assessed on the policyholder’s income, not that of the household. IP claims are also based solely on the policyholder’s ability to do their own occupation, meaning they can concentrate on their recovery rather than having to find alternative work to make up for a shortfall in income which may happen under Universal Credit.
Putting income first
At The Exeter, we believe that it’s time we put income first when it comes to every client conversation. Thankfully, record sales of IP policies suggest more people are putting plans in place, but the prevalence of coverage may mean too many people still have blind faith in the state.
To find out more about how The Exeter can help you put your clients’ income first, book a short webinar with one of our Adviser Account Managers at www.the-exeter.com
Sources:
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