If you were asked what your single biggest financial asset is, what would your response be? Your house? Your pension? These would be rather typical responses but in fact we’d argue that most people’s single biggest financial asset is their ability to earn an income.

The average UK salary is now approximately £29,500 so the average person will earn in excess of £1.25 million over their working life, and every year a million people in the UK find themselves unable to work due to illness or injury (ABI 2017). What would happen if your ability to earn was taken away from you due to injury or illness? How would you pay for your living costs? Take care of your family? Would be able to survive on your savings or employer sick pay?

Having an emergency fund is good place to start. Here at Pentins, we typically advocate holding around 3-6 months living expenses in savings to protect against unforeseen events such as not being able to work. But what can be done to protect against being unable to work for long periods of time? This is where Income Protection Insurance comes in useful.

Income protection insurance (aka Permanent Health Insurance, not to be confused with PPI!) is a long-term insurance policy designed to help you if you can’t work because you’re ill or injured. In the event of a successful claim, the policy ensures you continue to receive a regular income until you retire or are able to return to work. Normally the payments would start after a ‘deferred period’ which usually coincides with when your employer sick pay ends.

The maximum amount you can claim is usually limited to 60% of your salary so, for someone earning the UK average salary of £29,500, the maximum payable would be £17,700 per year (tax-free), or £1,475 per month which could go a long way to ensuring you and your family are provided for in the event you were unable to work.

The cost of income protection varies and depends on several factors including your age, job, the length of the deferred period and your health. Most people pay between £50 and £80 per month but this can be from as low as £10 per month, so, for about the same price as a Netflix subscription you could protect your most valuable asset – your ability to earn!