Many people assume that long-term sickness won’t happen to them, and even if it did, they would rely on state benefits to cover their loss of earnings. But the state often only provides limited help. The aim of this article is to point out what exactly the state may provide so that you can make a decision on whether this is sufficient should the worst happen
I arrange many mortgages for first time buyers and people moving home and I am passionate about protection for all of my clients. However, it is not always at the forefront of people’s mind when they are purchasing their first home or moving to a larger home, especially with all the increased outgoings that people experience when buying a new home.
Would you qualify for Employment and Support Allowance?
When it comes to Employment and Support Allowance (ESA), for people who have made sufficient National Insurance contributions and are considered to have a chance of returning to some form of work, ESA will only pay out for 12 months. After that you will need to reapply and the benefit will be means tested.
You may be able to apply for other state benefits, including Income Support, Child Benefit and Child Tax Credits. However, the benefit cap restricts households to a maximum of £500 a week of means tested benefits.
The reality is that if your partner works, you have no children or you have savings, your entitlement to means tested benefits could be drastically reduced. In fact, people with savings above £16,000 are unlikely to receive anything.
What is ESA?
If you’re ill or disabled, Employment and Support Allowance (ESA) offers you:
financial support if you’re unable to work
personalised help so that you can work if you’re able to
You can apply for ESA if you’re employed, self-employed or unemployed.
Click here to visit the Government website on ESA
How Much Could You Get From the State?
ESA is paid at varying levels depending on the severity of the illness or injury you have. The highest payment, for those with the most severe illnesses or injuries, is £108.152 a week.
If you are not eligible for contribution–based ESA, you can currently apply for income‑related ESA, but this is gradually being replaced by Universal Credit.
Both these benefits are means‑tested and so will take into account any continuing income you have, whether you have a partner who is working and whether you have any savings. Depending on your individual circumstances, you may not be eligible for any state support.
Other Benefits that May Be Available
You may be entitled to other benefits. The following link will explain what these may be and whether you would be entitled to them.
What Is The Solution?
There are a variety of income protection products that can protect you regardless of your personal situation. You are allowed to insure up to 65% of your income as these policies are paid out free of tax. So, if you earn £20,000 per year before becoming sick and you insure yourself for the full amount you would receive a tax-free, monthly income of £1,083.
Income protection premiums depend on a number of things such as:
Your age at the time you apply
Your health status at the time that you apply
Your smoking status
The deferred period that you choose
The deferred period is the number of weeks or months that you could wait before the policy would start to pay out. Typically, this will be the same as the period that your employer would pay you a full or part salary. It could also be related to the amount of saving that you have.
To calculate how long you could rely upon your savings one of our partners, Legal and General, have a tool called, “Deadline to Breadline” where you can put in your monthly outgoings and savings an the tool will tell you how long you would be able to cope without a salary. You can access the tool here:
If you think that you could benefit from a free review of your protection situation, please contact one of our advisers and we will arrange a no-obligation appointment for you at your convenience.