Redundancy, or need to take unpaid time off work to recover from an accident or illness, can lead to a loss of income for several months or more. The loss of income can, in turn, lead to difficulties in paying bills and other financial commitments as they fall due. Defaulting on bills and debts can lead to insolvency and, ultimately, personal bankruptcy. Income protection is designed to prevent such a rot setting in in the first place.

The connection between rising levels of unemployment in the UK and the consequent increase in personal insolvency was brought to public attention by a report in the Guardian newspaper on the 6th of February 2009. The story hung on statistics released by the Insolvency Service indicating that the number of personal bankruptcies in the final quarter of 2008 was up by nearly a quarter for the same period in the previous year.

The story went on to point out, however, that bankruptcies represented only the tip of the iceberg and that, when looking at the wider picture of individual insolvency, it was also necessary to consider the large number of people registering formal Individual Voluntary Arrangements with their creditors and the even larger numbers seeking the approval of informal debt management plans. Taking into account all of these categories, the newspaper’s correspondents estimated that as many as one in sixty of the adult population were, in fact, headed towards insolvency.

How can income protection help? It can help through the mechanism of something called income protection insurance. This is a simple and straight forward insurance policy that, in return for a modest monthly premium, guarantees to the policy holder the payment of a regular, replacement monthly income in the event that his or her normally earned income is interrupted or lost through accident, illness or involuntary unemployment.

Income protection works to ward off unmanageable problems with debt because it allows a significant proportion of the policy holder’s normally earned income to be insured. Although policies will of course vary from insurer to insurer, it is typically possible, for example, to insure a replacement monthly income of up to £1,500, or the equivalent of 50% of the policy holder’s normally earned income, whichever is less.

Once a valid claim has been made, the insured income protection benefits continue to be paid each month until the policy holder is able to resume normal working, or for up to a typical maximum period of 12 months (24 months in the case of some policies that offer the option of extending the maximum payout period).

By its very definition, misfortune strikes at whim. There is no way of knowing just when we might be struck, but it is usually when we are least prepared and the consequences are frequently more wide ranging than at first they might seem. Income protection insurance offers a sound and reliable way of preparing for such unknowns and can take into account an unusually broad spectrum of their ramifications.

So what are these common misfortunes? Accidents, of course, are often described as those just waiting to happen. But accidents lead to injuries. Injuries require time in which to recover. And the period of recovery usually incapacitates the victim for work. The unexpected consequence of the accident, therefore, rapidly turns into an enforced absence from work and – unless it is the rare employer with a particularly generous sick pay scheme – that absence will be largely unpaid. Illnesses can be counted in the same broad category. They strike out of the blue with precious little warning. They can incapacitate the victim from work and the enforced period of convalescence – which can stretch over several months – will often as not be without the benefit of pay from an employer.

The third type of most common misfortune is also the most topical. Redundancy can often come out of the blue, ending what had been considered the “safest” of jobs. With very little warning, the redundancy notice can be served one day and the next moment, it seems, the erstwhile employee is without a job and without any income at all.

Income protection insurance is designed to defend against precisely these misfortunes. Indeed, it is frequently known as accident, sickness and unemployment insurance – or even quite simply ASU insurance, for short.

It works in just as simple a way. If the policy holder is incapacitated for work by an accident or illness or if he or she is made compulsorily redundant, the insurance policy pays out a regular, replacement monthly income to make good a substantial proportion of the lost income from work. Thus, income protection insurance will typically allow cover that delivers a replacement monthly income equivalent to 50% of the policy holder’s normally earned income, or £1,500 a month, whichever is less.

In order to keep premiums for such cover as low as possible, income protection insurance is designed for essentially short- to medium-term protection, thus continuing to pay out the insured benefits every month until the policy holder is able to resume normal working or for up to a typical maximum of 12 months (unless an additional premium is paid to take up the option of extending the maximum payout period to 24 months).

The answer to the question tends to speak for itself. When there is so much unemployment about, it makes more sense than ever to seek unemployment cover. Rising unemployment leads to reduced consumer spending overall; reduced spending leaves employing businesses struggling to survive; those that cannot survive make staff redundant, thus increasing the numbers of unemployed; and so the vicious cycle goes round. Unemployment cover is a sensible option for those caught in the wheels of this vicious circle.

There is little doubt that there is a lot of unemployment around – a confirmed two million, according to official statistics. There is also little doubt that the rate of total unemployment is escalating – the second month of 2009 saw the fastest growth since records began, according to the daily Telegraph newspaper on the 18th of March 2009, which also forecast an additional one million redundancies during the course of the next year.

In circumstances such as these, unemployment cover is important for providing an alternative source of income when that from normal employment is suddenly withdrawn (because of redundancy). It does this by way of a simple and straight forward payment protection insurance, which guarantees an agreed replacement monthly income in insured benefits in the event of the policy holder’s compulsory redundancy. Once the benefits are in payment, they continue for as long as the policy holder remains unemployed – that is, until he or she has secured alternative employment – or for up to a typical maximum of 12 months (the duration is variable to the extent that some unemployment cover offers the option of extending the duration of benefit payments up to a maximum of 24 months – on payment of an additional premium).

Unemployment cover arranged in this fashion is sufficiently flexible to suit almost any personal needs and circumstances and practically any pocket. The premiums are, of course, determined by the level of replacement income insured and the latter is generally restricted only by a typical maximum permitted cover of up to £1,500 a month, or the equivalent of 50% of the policy holder’s usual income from work, whichever is less.

A final reason for choosing unemployment cover must be the very wide criteria for eligibility. At its simplest, eligibility turns only on whether the proposed policy holder is currently in regular employment and whether he or she has been similarly employed for at least the previous six months. Naturally, there must be no prior notice of an actual or impending redundancy and the policy holder must be living and working in the UK, Channel Islands or isle of Man.

Personal finances have changed beyond recognition since the credit crunch in the autumn of 2008. Not only mortgages, but practically any form of borrowing is considerably more difficult to secure. Credit histories will be trawled with a fine-toothed comb by any potential lender before loans are advanced. Protecting your credit rating means paying every bill the minute it falls due. But payments of any kind are difficult if you are unemployed. Unemployment protection, therefore, can play its part in protecting your future.

It has probably gone beyond the point where you need newspapers, the radio or television for confirmation of the crisis of unemployment. Nevertheless, it is worth recording that figures from the Office of National Statistics – published by the daily Telegraph newspaper on the 18th of March 2009 – showed that the rate of unemployment reached record levels in the second month of the year and, with a further one million redundancies forecast during the next 12 months, is likely to exceed three million before the end of 2010.

The indeterminate period of unemployment following redundancy, of course, leaves the victim without any earned income. Without an income, debts are likely to build up, with the payment of bills either delayed or missed altogether. At best, defaulting on the payment of bills is likely to result in an adverse credit report, at worst, a county court judgment for recovery, or in the case of mortgage repayments, the possible repossession of the home. Even at its best, therefore, adverse credit reporting will result in difficulties in obtaining loans and credit in the future and will certainly make them more expensive.

Unemployment protection is protection against such outcomes and is protection, therefore, of the policy holder’s future financial standing also. It is based on the simple and straight forward principles of payment protection insurance, whereby the policy holder is paid a guaranteed, regular monthly benefit under the terms of the insurance policy in the event of his or her being made involuntarily unemployed.

The level of unemployment protection available varies from insurer to insurer, but most such insurance policies allow a typical maximum of £1,500 a month, or the equivalent of 50% of the policy holder’s usual gross salary from the job they were doing. In other words, the benefits can almost always be used to ensure that debts continue to be met as they fall due, without the adverse credit reporting that will hold the individual hostage to fortune in the future.

Such unemployment protection generally features the payment of insured benefits throughout any period of temporary unemployment until the policy holder has secured alternative employment or up to a typical maximum of 12 months (an extension to a maximum 24 months is sometimes optionally available on payment of an additional premium).

Record levels of redundancy are going hand in hand with record numbers of personal insolvency. There is probably nothing too surprising in that relationship, yet many people, it seems, are overlooking a simple and modest investment that could break the inevitable chain between redundancy and insuperable problems with debt. Unemployment insurance could be the device to break the chain and prove itself an especially wise investment.

In second month of 2009, unemployment in the UK grew at its fastest rate since records began, according to reports in the daily Telegraph newspaper on the 18th of March 2009. The same source – quoting figures released by the official Office of National Statistics – estimated that a further one million employees would be made redundant during the course of the next 12 months.

Even before the release of these sobering statistics, it was becoming evident how awful could be the fallout from the current economic recession in terms of lost income as a result of unemployment. The Guardian newspaper, for example, on the 6th of February had already reported other government figures showing a record increase in the number of personal bankruptcies at the end of last year. The report estimated that as many as one in sixty of British adults were grappling with personal insolvency.

Even with unemployment still below the threshold of two million, therefore, personal insolvency was a problem; how much more of a problem must that be with unemployment topping three million. Unemployment inevitably means the loss of the income used to pay the bills as they fall due. Unemployment insurance, on the other hand, offers a way of ensuring that essential payments continue to be made and insolvency held at bay.

Unemployment insurance works just as simply as that. If the policy holder is made redundant through no fault of his or her own, then the insurance begins to pay out a regular monthly benefit that is, to all intents and purposes, a replacement income. The amount of that income is decided in advance by the policy holder to suit his or her own personal circumstances and means and continues to be paid throughout the period of unemployment – or up to a typical maximum of 12 months if alternative employment is not found in the meantime.

Although unemployment insurance policies differ in their detail from insurer to insurer, it is generally possible to insure up to a maximum of £1,500 a month, or 50% of the policy holder’s normally earned income, whichever is less. In return for a monthly premium which is low enough to make this form of insurance an especially wise investment, therefore, unemployment insurance offers a steady and reliable source of replacement income to ensure that the majority of financial commitments continue to be met, even in the event of redundancy.

Before much longer than a year passes, a further one million British workers are expected to be made redundant, driving the total number of employed up to beyond three million and the proportion of all those unemployed to more than one in ten of the work force. We are certainly not out of the dark, recessionary woods yet and it remains a time when redundancy cover, therefore, can not only help but can provide a much-needed financial lifeline to anyone losing their job.

Statistics released by the Office for National Statistics and published in the daily Telegraph newspaper on the 18th of March 2009 showed that unemployment was rising at a faster rate than at any time since such statistics began to be collected in 1971. The report included the assessment by economic analysts that a further million redundancies are likely to be announced during the course of the next 12 months.

Redundancy cover could offer a financial lifeline to those made redundant by providing a regular, tax-free replacement monthly income with which to continue to pay everyday bills and expenses – including the mortgage repayments and those on any other borrowing or credit, for example – during the period of unemployment whilst searching for alternative work. Such a lifeline can make a critical difference between continuing to make ends meet at such a difficult time, or drowning in a sea of rising debts and possibly even facing the prospect of repossession of one’s home.

Redundancy cover is provided by a simple payment protection insurance which allows the policy holder to choose the level of replacement income that will be needed at the time of arranging the cover. The maximum amount that can be insured in this way is frequently linked to the policy holder’s normally earned salary and is typically set at 50% of such earnings, or £1,500 a month, whichever is less.

The claims procedure is straight forward, too. Upon redundancy, the policy holder is generally required to wait for a given interval – often described as the “qualifying period” – which is typically between 30 and 90 days. At the end of this period, the insured benefits become payable – either backdated to the first day of unemployment or payable from the first day following completion of the qualifying period. The benefits then continue to be paid on the same date every month until the policy holder has secured alternative employment or up to a typical maximum of 12 months, whichever comes sooner. With some policies it is possible to pay an additional premium in order to extend the maximum payout period to up to 24 months.

In either event, of course, the comfort of knowing that there remains a regular and reliable source of income, at a level chosen by the policy holder, is not only helpful, but can provide a positively indispensable lifeline during the trauma of unemployment following redundancy.

With very good reason, almost anyone who has managed to hold onto their job post-credit crunch is desperately worried about the ever-present prospect of redundancy catching up with them sooner or later. Statistics from the financial pages of the press and on radio and television tell the now often repeated story of unemployment as the scourge of our times. Just as surely, redundancy protection could prove as essential a sign of the times.

Release of the official statistics on unemployment prompts a flurry of newspaper stories. One of the latest of these – carried by the daily Telegraph on the 18th of March 2009 – described how the total number of jobless in the UK has now exceeded two million people and that the three-million milestone would be passed towards the end of 2010, when one in ten of the work force would be without a job, and after a further one million redundancies during the course of the coming 12 months. One of the most alarming statistics, perhaps, was published by the Guardian newspaper also on the 18th of March, when it was revealed that amongst the under-25 year-olds unemployment currently stands at a staggering 40%.

With the job markets rapidly becoming barely recognisable, what exists in the way of redundancy protection? The one saving grace, it seems, is that effective and dependable redundancy insurance exists in the form of redundancy income protection insurance – it won’t actually prevent a redundancy from happening, but it will significantly cushion the blow caused by the sudden loss of income experienced by the unemployed.

It works in a straight forward manner. The policy holder pays a modest monthly premium and, in return, is guaranteed a regular, replacement monthly income from the insurance policy in the event of his or her compulsory redundancy. The monthly payouts are in an amount decided by the policy holder when the cover is first arranged and these continue to be made each month for as long as he or she remains unemployed or for up to a typical maximum of 12 months, whichever is sooner. Enhanced cover can sometimes be arranged (depending on the policy) in which the maximum payout period is extended to 24 months.

This form of redundancy protection can be used to insure a substantial proportion of one’s normal working salary. The maximum amount of cover, for example, is typically set at the equivalent of 50% of the policy holder’s normally earned income, or £1,500 a month, whichever is less.

Many potential policy holders will have seen such redundancy protection included in so-called accident, sickness and unemployment insurance. Whilst it is commonly decided to purchase protection against all three risks like this, it is important to remember that standalone redundancy protection can also be purchased as a single-risk policy. With only one of the three risks covered, the premiums – as you would expect – are correspondingly cheaper.

http://www.telegraph.co.uk/finance/financetopics/recession/5010083/UK-unemployment-jumps-at-fastest-pace-on-record.html
http://www.guardian.co.uk/commentisfree/2009/mar/18/unemployment-and-employment-statistics-economy

It’s a fast-moving world in the economy at large. Unfortunately, most of that movement expresses a continuing downward spiral. Take unemployment, for example. It presently stands at two million, a peak of well over three million is expected some time towards the end of 2010, and a million more redundancies are forecast over the next 12 months. For those keen to keep pace with the fast-moving ravages of unemployment, redundancy insurance offers the solution.

The problem with redundancy, of course, is the loss of income that goes with it. Suddenly, the work that generated the income with which to pay the rent or mortgage, everyday bills and expenses, and the repayments of loans and credit is no more. And this is the predicament facing millions of people in the UK, as the rate of unemployment climbs to its highest since records began, according to a report in the daily Telegraph newspaper on the 18th of March 2009.

Redundancy insurance can keep pace with the rising tide of unemployment no matter how fast it accelerates. It offers the individual employee a permanent defence against the risk of unemployment in the shape of a guaranteed, regular replacement monthly income if he or she is handed a redundancy notice. Once the cover is in place, the policy holder simply completes an initial waiting period (typically, lasting 30 days but possibly as long as 90 days, and frequently referred to as the “qualifying period”) in order to qualify for a claim under the insurance provisions with respect to redundancy.

The insured benefits are then paid either from the end of this period – or in the case of some policies are backdated to the very first day of unemployment – and continue to be made every month until such time as the policy holder has secured alternative employment, or up to a typical maximum period of 12 months, whichever comes first (some policies offer the optional benefit of extending this period to 24 months, by paying an additional premium).

Not only are these monthly benefits paid free of any income tax, but the actual amount that will be paid is entirely in the hands of the policy holder. The level of cover is determined by the policy holder when setting up the cover and will determine the cost of the monthly premiums to be paid. Clearly the amount chosen will depend on the policy holder’s personal circumstances, but it is generally possible to insure up to a typical maximum of £1,500 a month, or the equivalent of 50% of his or her normally earned gross salary from work, whichever is less.

To be eligible for redundancy insurance applicants simply need to be in regular employment at the time of the proposal and to have been working regularly for at least the previous six months. They need to be resident and working in the UK, Channel Islands and Isle of Man and to remain available for work and below retirement age throughout the term of the insurance. Naturally, there must be no redundancy notice already in force or impending.

The chances are that you are already juggling to balance the mortgage repayments or find the rent, keep up with the repayments on any outstanding loans or credit and still finding ways to pay an endless stream of household bills and expenses. It is difficult enough making ends meet in these recessionary times. Imagine the headaches caused by a disruption of the income used to pay all those financial commitments, therefore. It is just when you might need some form of income protection.

An interruption of the normal flow of income into your bank account can happen with rather depressing ease. What seemed like a more or less regular bout of the ‘flu, for example, can turn into something somewhat more serious and an extended period off work whilst convalescing at home. Similarly, an accident could leave you with injuries that require several months off work whilst you are on the mend. Not to mention the risk of your number being called in the seemingly endless round of redundancies being declared in almost every sector of the labour market these days.

Income protection, therefore, offers a way of allowing you to rest easier at night in the knowledge that even if an accident, sickness or unemployment should strike, there will still be a protected income on which to rely. Such reassuring reliance can come in the form of income payment protection insurance – a simple device which pays out a guaranteed, regular monthly benefit in the event of the policy holder’s incapacity to work (because of an accident or illness) or because they have been made compulsorily redundant.

There is a great deal of freedom and flexibility in deciding the level of replacement income that best suits your circumstances. This will be determined by the cost of the monthly premiums (invariably quoted per £100 of cover purchased) and will allow cover of up to a typical maximum of £1,500 a month, or 50% of your most recent gross income from work, whichever is less. Having settled on a level of replacement income on which you believe you can get by in the event of a claim, this is the amount that will be paid each month. The payments continue until you are well enough to resume normal working, have found alternative employment, or for a typical maximum of 12 months, whichever comes first (for those worried about whether 12 months will prove long enough, some policies offer the option of extending it to up to 24 months if circumstances demand, although the cost of the monthly premiums is naturally higher).

It is worth noting that agreement on the level of monthly benefits to be paid in the event of a claim and the time limit on the number of such payments, are elements of income protection insurance that actually work to the policy holder’s advantage. Both are ways by which the insurer can better define the liability to which his business is exposed and by ring fencing the level of monthly payments and limiting the number to 12 (or 24) the liability is kept sufficiently within bounds to ensure that the insurance premiums are kept as low as possible.

At a time when everyone is feeling the financial pinch, at a time of mounting personal debt, at a time when literally millions of individuals will face the prospect of unemployment, it is surprising that so relatively few people seem to have considered protecting their future with income protection insurance.

Research* suggests that only around 10% of the working population has income protection insurance – a device that guarantees an alternative source of regular income in the event that pay from normal working is temporarily interrupted or lost. Of the remaining 90%, over two-thirds have given the question no thought at all or have a misplaced and exaggerated notion of where an alternative income might come from.

Yet a regular income from work is more vulnerable than many people apparently think. Redundancy, of course, is probably the greatest threat of the moment, with two million individuals already unemployed, and the widely held belief that a further million redundancies over the next 12 months will swell the army of unemployed to well over three million. But still relatively few employees appear to have given much consideration to their financial fate if the axe should fall on their own jobs.

A steady income is also vulnerable to misfortunes such as accidents and illnesses which can keep their victims off work for several months at a time – and the longer the absence, of course, the more likely that pay from the employer will be withdrawn. Indeed, studies conducted by the Department of Work and Pensions shows that of the million or so employees who call in sick each week, some 3,000 of them had been unable to return to work after six months.

Presented with statistics such as these, more prudent employees will have arranged their own income protection insurance. This involves the very simple expedient of paying a modest monthly premium in return for a guaranteed, monthly replacement income from the insurer in the event of their losing pay following absence from work because of an accident or illness, or in the event of their compulsory redundancy. The amount of replacement income that becomes payable will have been determined by the policy holder at the start of the cover and can typically be as much as 50% of the gross income otherwise earned from work, or £1,500 a month, whichever is less. Payments continue each month until the policy holder has resumed normal working, or up to a typical maximum of 12 months (a period of 24 months is optionally available with some policies, on payment of an additional premium).

The harsh reality check should be made by those who have given no thought to income protection insurance or by those who put their faith in some of the alternatives. Some might think their savings adequate to tide them over any period spent without pay from work. Average savings, however, are currently at an all-time low and are unlikely to last for any significant duration. Some employers might offer a reasonable sick-pay scheme for those temporarily incapacitated for work, but even these payments will be drawn if the absence is longer than three to six months and no pay at all will be available in the event of redundancy, of course.

* Yorkshire Building Society – The Protection Gap, July 2008