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could you afford to lose your income?

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Insurance is a pretty boring topic, and insurance salesmen are the butt of many jokes. Like many boring things though, insurance is eminently sensible as long as you do it right.

I’ve been reminded lately about the importance of insurance, as I’m suffering a little with my left hand/arm/wrist (I’m a leftie). It’s making it uncomfortable to type, and of course typing is what I do practically all day both here, and in my day job.Although I know that my discomfort is caused by a specific event, a chronic condition like RSI would have a very detrimental effect on my ability to earn an income.

For most people in the pre-retirement stage of their lives, losing the ability to earn is both financially damaging and more likely than you might think. It’s not often self-insurable (if you don’t need to work for money, then you are self-insured, otherwise you are not), but you can and should consider taking out both short and long term disability insurance, also known as income protection insurance to cover you against such an unfortunate event. You might, however, not need to pay for it yourself.

My employer has just introduced a new benefit, which is Group Income Protection that pays out 50% of pay (minus any other income received) after 6 months of sick leave - during those 6 months you are still employed on full pay. I’ve already got a income protection plans in place, and now I’m not sure whether to cancel. I suspect that having two policies won’t net me any more money, but it’s possible that one could have less stringent requirements than the other.

The question is, should I cancel my own policy, and just rely on my employer’s policy? Or should I keep paying out £26 a month, for my own cover?

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8 comments for “could you afford to lose your income?”

  1. Great post, and great things to think about. Don’t have an answer to your questions, but it certainly made me develop a few of my own.


    Posted by Myfinancebutler | May 9, 2008, 9:05 pm
  2. Oh, and by the way, my favorite insurance-salesman joke goes on all through ‘Groundhog Day.’ Ned (and Murray’s reaction to him) helps make that movie!

    Posted by Myfinancebutler | May 9, 2008, 9:07 pm
  3. Disability insurance is very important and often overlooked. After health insurance (though I guess this doesn’t matter for you in England?) it is the most important insurance in my opinion. One thing to keep in mind is what happens if you lose your job. In the USA you have to qualify for disability insurance when you want to buy it. If you are injured or sick… and then try to get disability insurance you may not be able to, or it might cost much more.

    Posted by Curious Cat Investing and Economics Blog | May 9, 2008, 11:09 pm
  4. Best to check all the small print to see if you’ll receive 2 payouts - also worth checking the exact features of your employers policy to make sure it gives you enough cover, before considering cancelling your own policy.

    Posted by Rob Lewis | May 10, 2008, 5:59 am
  5. I agree with Rob Lewis,
    Check the fine print to see which benefits you’ll get with either plan.

    Disability in a work environment means that they’re able to bulk buy, which would make it cheaper. However, are you getting the same amount of benefits as you would with a private package.

    And… do these packages meet your requirements financially should you have to stop working?

    Posted by Monty Loree | May 10, 2008, 2:00 pm
  6. Interesting. Good points made by others: compare the benefits as well as the costs.

    What happens if you switch to your employer’s plan and then in a few years leave that employer? Can you get your private plan back? If you kept the private plan, would your premiums then be lower (say, in five years) than if you moved to the employer’s and then in five years had to move back to the private plan?

    Posted by Funny about Money | May 11, 2008, 2:02 am
  7. The premiums on my private plan are level, so I’ll have to upgrade in a couple of years anyway in order to keep up with inflation.

    Neither plan would fully replace my income, I’d have to cut back a lot, and probably get a housemate. Which would certainly be do-able, if not that much fun.

    A personal finance blogger admits that she’s under-insured *hangs head in shame*.

    Posted by plonkee | May 11, 2008, 10:02 pm

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