Over 50s income protection insurance – what you need to know
As you are probably well aware there can be a fair few perks associated with getting older, with the over 50s able to look forward to filling their free time as they approach retirement age by spending more time with their family – or spending it on the golf course!
Having said that, in recent years there has been a trend of over 50s seeking increasingly adventurous ways to spend their time – from cruises and road trips to exotic holidays and safaris.
Before thoughts turn completely to retirement plans, though, there’s still the small matter of your current employment. You may be over-50, but the retirement age here in the UK remains 65, so you could easily have some way to go yet. And if that is the case then if you haven’t already seen to it you might want to think about protecting one of your biggest assets – your income.
Unfortunately the prospect of unemployment amongst this age group has been seen as something of an occupational hazard.
While a few decades ago if you lost your job in your 50s then you’d risk ending up on the employment scrap heap as your wealth of experience was overlooked in favour of the supposed ‘cut and thrust’ of more youthful candidates.
Thankfully employers and society as a whole altered their perspective on this previous acceptance and today thousands of people heading towards retirement can find suitable vocations far easier than before, with an expansive choice of industries acknowledging and welcoming their long-accrued skillsets.
However there’s always the chance that they could still fall short of reaching their retirement goals, thanks to sustaining unforeseen injuries or being diagnosed with career-threatening illnesses when the employment finishing post is honing into view.
Which explains why it’s imperative that the over-50s safeguard their continued earnings and ability to provide for their nearest and dearest to the very end of their working life.
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Income protection insurance policies are one of the most obvious answers to the question of how we can ensure that we don’t financially lose out at some point in the future, and its premise doesn’t change with age. Neither do the obstacles which present themselves and risk compromising our ability to both physically and emotionally continue to carry out our working roles. In fact, the older we become the greater the propensity to sustain injury, statistically-speaking, while our susceptibilities to serious illnesses sadly increase too. All of which makes the need to insure against these occurrences even more crucial.
Short-term plans provide the best income protection insurance solutions for the over-50s
The thing is, from an income protection insurance providers’ viewpoint, they too are well aware that the older the policyholder is, the higher the risk of them picking up an injury or falling prey to illnesses. A point which is reflected in both the range of policies available to them and the premiums they’re likely to have to pay for the added security. Two rudimentary elements which aren’t habitually endured by younger proposers.
For a start long-term income protection insurance plans – or whole-of-life – as they’re more commonly known, are pretty much out of the equation as these are typically designed to last anywhere between 10 and 25 years. So if you’re over-50 then you wouldn’t normally qualify.
As there are traditionally just three predominant types of income protection insurance (and we’ve already as good as ruled out the most popular one) – that leaves us with the 2 remaining choices. Accident, Sickness and Unemployment cover (ASU) focuses jointly on the unemployment aspect as much as the accident and/or sickness element, which is good news. Not least because neither of the other two options include this safeguard as part and parcel of the standard package.
Also cover is more often than not cheaper in terms of premiums whilst the prospective insured party doesn’t have to be subjected to full medical underwriting protocol at the outset; although potential policyholders will be screened prior to having insurance offered.
On the flip side, historically there’s less certainty surrounding successful claims should you file for one, so risks are considered greater.
This leaves us with by far the most workable option for the over-50s: short-term income protection insurance. Mirroring long-term/whole-of-life policies, short-term (or Stip for short) is fully underwritten from the moment cover is ratified.
However the main difference between Stip and the other income protection insurance variants is that as opposed to the plan paying out until the policyholder is in a physical/mental position to return to work, they reach retirement age or, sadly, die, Stip operates on a fixed maximum pay-out period, normally set at between 1 and 5 years and during that time will recompense the insured party in the event of them unexpectedly succumbing to serious injury or illness and unemployment.
The amount is pre-determined at the point of the policy being underwritten and amounts to around 50% – 65% of your annual gross income on average (as pay-outs are tax free).
Short-term income protection is the ideal stop-gap solution for the over-50s as it provides an all-but guaranteed means to a monetary end should your health or medical situation change for the worse during the latter stages of your working life.
It’s especially useful if your savings are limited or if you feel that you’d run out of funds within a few weeks of being unable to work (research suggests that over 50% of UK households would run out of money in a little over 2 months after your earnings stopped).
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If you select a deferred period when you first sign-up to Stip, then you could rely on statutory sick pay from your employer (or instead manage on your rainy day money or lean on state benefit provisions which you may be entitled to) for a few weeks or more, before acknowledging the commencement of the income protection insurance payments. By prolonging the interim period, policyholders financially benefit by witnessing lower monthly/annual premiums as a direct result of this practice.
Although Stip isn’t the most cost-effective income protection option per se, it is relatively straight-forward to arrange though a broker or in an online capacity, while a medical isn’t a stipulation as such. Essentially short-term income protection plans help you to keep fiscally afloat during temporary periods where the insured party cannot continue employment as we alluded to earlier.
Returning to the subject of the cost-effectiveness associated with short-term income protection insurance, and age is the inescapable precursor to elevated premium prices quoted as insurers argue that this reflects the increased number of claims for health problems, combined with the length of time that the over-50s take in sourcing another role.
As a rough guide, it’s envisaged that a Stip policyholder would pay in the region of between £30 and £50 per month in relation to every £1,000 of monthly benefit they’d stand to receive tax-free if a claim was lodged. For the record, beneath are times when short-term income protection insurance policies will NOT pay-out, so you need to recognise these:
- Claims which arise from undisclosed pre-existing medical conditions which the policyholder had prior understanding of when agreeing to the Stip conditions. Providers only check this information AFTER a claim is made, yet to determine the facts of the matter they will approach a policyholder’s GP to ascertain details of the condition and more pertinently, when it was first diagnosed. Restrictions are often imposed regarding certain medical conditions, and short-term income protection insurers do tend to vary with regards to the medical evidence they seek for muscular skeletal and mental health conditions. It’s crucial that would-be Stip policyholders refer to the ‘What’s Not Covered’ section found in the ‘summary of cover’ documentation for clarification on this issue.
- Unemployment claims if you had knowledge at the time you took out the policy that you might be made redundant. Cover for unemployment rarely starts until a policy has been in-force for between 2 and 4 months.
- Other important facts to consider before agreeing to short-term income protection insurance in principle is that the claimant must be off work a minimum of a month before they put in a claim. Which is why Stip is not a worthwhile investment for people who foresee occasionally taking off a few days sick at a time.
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