Income for a year!

A major campaign launching next month will end up handing seven struggling families a monthly income for a year.

The point of the campaign? To raise awareness of income protection, a form of life insurance that pays out if you’re unable to work due to injury or illness.

Families will be found through the charity Disability Rights UK. To qualify the main breadwinner must have been forced out of work by an accident or illness and not had any insurance payout.

As well as being handed income for a year, the recipients of the Seven Families campaign will also be helped with rehabilitation. The cash will be handed over on a charitable basis, but be paid monthly to replicate what would have happened if they’d had the right cover.

Peter Le Beau, chairman of the Income Protection Task Force which is organising the campaign, explained: “We hope to show the financial vulnerability of people who end up being long-term disabled. Many don’t appreciate how seriously an accident can hit your finances. But we also want to demonstrate that with the right support people can get back to work. There is hope, even after a serious illness.”

Very few people have Income Protection policies. An estimated 2 million have cover through their workplace while another million have taken out their own policy.

Unlike Critical Illness cover, which pays out a lump sum if you’re diagnosed with a terrible ailment, Income Protection pays a monthly amount, usually until retirement, death or your return to work. As such the payout can be much higher, although there are budget plans which have a limited payout. There are also restrictions which means most policies pay out after a set period, which can be weeks or months.

So while the cover can make a huge, financial difference, buying a policy without checking whether it’s the right one for you could end up being a costly mistake.

Income Protection is one of the most important types of financial cover you can have, but it can also be one of the most confusing to buy.

The main mistake people make when buying Income Protection is they don’t get what is known as “own-occupation” cover. Some cover offers any occupation, which means you have to be unable to do any job at all to claim, which rules many out.

To his shock, Chris Hargreaves, a 37-year-old chauffeur from Manchester, had his Income Protection claim turned down even after suffering a rectal ulcer and pulmonary embolism that required more than six months of hospital treatment. That turned out to be because he didn’t have own-occupation cover.

Chris was so angry at what he felt was a betrayal by the insurer, he launched a campaign to highlight the injustice. As he writes on the website he subsequently set up at angrypolicyholders.com: “These policies are often written so loosely by insurers that making a claim is almost impossible, as all the ‘work tasks’ are subject to using aids or the help of others.

“This could mean you are 95% blind, yet with a giant magnifying glass you can read 16-point print; or you can’t speak but can blink once for yes or twice for no, so you are able to communicate. These are just some of the lengths insurers could go to deny a claim.”

In fact Chris has accumulated many more stories of people who feel they were misled by insurers into buying what turned out to be useless cover.

The case highlights the problem of being sold inadequate cover. The last thing somebody wants if they are off work long-term sick is to find out a policy they have paid for each month isn’t going to do what they need it to. So it’s important to thoroughly research the market to ensure you have the right policy for your needs, and speak to a specialist protection adviser.

Here is a quote that is generally attributed to John Ruskin, a 19th century art critic and social thinker:-

“There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person's lawful prey. It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money – that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot – it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”

This sums up the major pitfall of buying insurance online, which is invariably price-driven. You think you’ve got a real bargain until you come to claim, and then find out something in the small print that says you are not covered. Just remember, the large print always gives, and the small print always takes away!

When making a decision as important as how to protect yourself and your family if the worst happens, please make sure you take the advice of an independent protection specialist, and don’t leave things to chance.