Protect your future self

Money for nothing but peace of mind for free! 

When it comes to talking to those in their early 20s about insurance, it’s generally as hot a topic as pensions, mortgages, and interest rates. What’s more, it becomes even less appealing when they realise that they should spend money on it with the ideal outcome of never actually claiming the benefits! 

In the United States, those between the ages of 18- 29 are referred to as the ‘Young Invincibles’ by the insurance industry because they perceive themselves as immune to sickness and injury and have the general attitude of ‘it won’t happen to me’. 

When you secure your first job, you are excited about the independence it brings and the financial opportunities to be a bit frivolous. Fast forward to your first pay packet, and once you’ve got over the shock of tax and national insurance, many are then reticent to commit to additional expenses such as insurance and pensions at a time when most want to enjoy life. However, when it comes to insurance, the younger you are, the cheaper it is, and a few pounds each month could make a massive impact on your life. 

Along with independence comes a responsibility that not many think about. With no mortgage or dependents, why would you need insurance as your untimely demise wouldn’t financially impact anybody else? However, what would you do if you couldn’t work for a significant period? Who would pay your phone bill, gym membership, or car insurance? This is where income protection policies can become not necessarily a life saver, but more of a lifeboat. 

Income protection, as the name suggests, is there to replace your earned income should you no longer be able to work due to illness or injury. It will typically replace between 50-75% of your gross salary until you return to work, retire, or the policy term ends. 

Like many insurance policies, this coverage can be adjusted based on individual requirements, such as selecting a deferred period that matches an employer’s sick pay policy, opting for benefits that increase with inflation, and determining the amount needed to maintain a similar standard of living until returning to work. 

So, how much will this cost?

Well, for a typically healthy, non-smoking 25-year-old male earning £32,000 (the average wage for a 25-year- old (1)), the cost for the maximum cover is a measly £13.61 per month!(2) 

For this, you would get a tax-free income of £1,733 per month after the deferred period of three months. This would be payable, if necessary, until age 68, and the benefit would even increase in line with RPI to give further protection. Given the monthly benefit is 78% of your net monthly income of £2,222, this should be able to more than cover your basic living expenses until you are back on your feet again. 

Amazingly, based on this example, if you were to only ever receive a single month’s benefit of £1,733, this is the equivalent of paying the premiums for over 10 years! For peace of mind while you embark on the typically uncertain early stages of your career, this does represent truly remarkable value for money! 

Now that your income is sorted, and as you progress in your career, you may want to look to buy your first home with your partner. No doubt this will be the most expensive part of your life up to this point, with a myriad of charges and fees. But when the dust settles and your mortgage starts, it is worth considering mortgage protection. 

This, in essence, guarantees to pay off your mortgage on death, and however unlikely this may be, the benefit to your partner in knowing the major monthly outgoing would be settled can bring peace of mind at a heartbreaking time. 

Sound expensive?

Worry not, this is one of the most cost-effective types of insurance. For just £6.30 per month (2), you could cover a mortgage amount of £204,300 (90% of the average first-time house cost (3)) for 25 years! The simple reason that the cost is so cheap is that it is based on repaying your mortgage on death, therefore as your mortgage reduces over time with your monthly repayments, the benefit also decreases at a similar rate. 

So, for under £20 a month, you could have both your income and life protected, knowing that you and your family are safeguarded for two of the most unthinkable occurrences we try not to consider. 

For those with younger family members in this position, you could consider funding the premiums to give peace of mind for both you and them. Furthermore, if you have an inheritance tax liability, the premiums could be made as a gift out of surplus income, thus reducing your liability and effectively giving a 40% reduction on the premiums! 

It truly does pay to consider your options, and we are always more than happy to help, so please call us on 0161 486 2250 or contact your financial planner to discuss this further.  

1. www.instantoffices.com
2. The Exchange :: Home
3. www.rightmove.co.uk