In our busy world we have little time to think about life insurance and income protection, which protect our family and our income in case of death or inability to work. The only exception is often when we buy a property and need a mortgage. Then, the bank or building society encourages us strongly to subscribe to a mortgage protection policy. We can easily see the importance of it but more to the point, we do want this mortgage! As far as life insurance is concerned, that is usually as far we are prepared (or coerced!) to go… Until the day when a baby comes into our life, depending on us for everything. The thought of the consequences of our premature death or a critical illness on the little one may be immediate, leading to action.
In the UK, the state benefits for bereavement or incapacity to work due to illness or accident are minimal. Therefore taking out private insurance policies, such as life insurance and income protection, is the only option to ensure you receive an acceptable level of financial protection for you and your family following a critical life event.
Below you can find more information on the British financial protection market and Expat Assure’s recommendations regarding life insurance and income protection in the UK.
What benefit do my family and I get from the UK government in relation to income protection, death and unemployment?
1. Benefits in case of illness or accident affecting your ability to work
You can get £94.25 per week Statutory Sick Pay (SSP) if an illness or disability affects your ability to work. It’s paid by your employer for up to 28 weeks. In order to qualify for SSP you need to have been off work sick for 4 or more days in a row (including non-working days), alongside other eligibility criteria.
If you are self-employed and are not entitled to SSP, or after 28 weeks when your SSP ends for employed persons, you can get financial support and work-related support through the Employment and Support Allowance (ESA).
In the event of a long-term illness or if you are permanently disabled, the maximum you will receive is £73.10 per week for a period of 13 weeks following your claim. After these 13 weeks your situation will be reviewed. Even with a very severe disability, your benefit amount will not exceed £131.70 a week.
The allowance also takes your savings into account. If you have savings higher than £6,000 you will get less than the amount stated above. If you have savings over £16,000, you won’t qualify for income-related Employment and Support Allowance.
2. Bereavement benefits
- Bereavement allowance: this allowance is granted for a maximum of 52 weeks, and is available only if you have been widowed between the ages of 45 and the State Pension Age. The amount allocated depends on your age. The maximum you may get is £119.90 per week.
- Widowed Parent’s Allowance: This is granted to those who are below legal pension age and who are responsible for at least one child. The maximum allowance is £119.90 per week.
- Bereavement Payment: If your partner dies due to an accident or illness, you may be eligible for a tax-free lump sum payment of £2,000.
The amount of bereavement benefits allocated depends on your partner’s overall level of National Insurance contributions. This information is worth keeping in mind for expats: if your partner had been residing in the UK for a short period of time, the bereavement allowance may be reduced or not granted at all.
3. Unemployment benefits
The Jobseeker Allowance is a maximum of £73.10 per week or £114.85 per week for couples.
What type of cover can I get through my employer?
Some British companies offer their employees protection cover as part of their employee benefits scheme. This could include:
- Life insurance: the amount of cover will usually vary between 1 – 4 times their salaries.
- Income protection: will pay out a regular income if you are unable to return to work due to sickness or accident. It is a company benefit not as frequently provided as life insurance. When it is provided, it usually varies between 50% and 66% of their salary. Contrary to an individual policy, these benefits are fully taxed in the hands of the employees.
The limitations of being insured through your employer:
UK employers are not obliged to offer these types of benefits and the level of cover differs quite significantly between employers in the United Kingdom.
Even if your employer is offering protection cover it is important to keep in mind that the cover is likely to cease once you leave the company or the United Kingdom.
If in the meantime you have developed a serious medical condition it will be very difficult to subscribe to a new individual life insurance policy or income protection plan, as the insurance company may not be willing to accept a policy with a higher rate of risk.
For these reasons, we believe that life insurance and income insurance through the employer may not be in the best interest of mobile individuals and therefore we advise on taking an individual policy that will not be affected if you change jobs or country.
Your options in terms of life insurance in the UK as an individual
If you are an expat anywhere in the world we have solutions for your life insurance and income protection either in euros, in US dollars or pound sterling.
The international life insurance policies are annually renewable and do not offer trusts.
However, if you are a UK resident, a local UK policy (in pound sterling) is usually a better solution than an international policy for the following reasons:
- The policies are cheaper and guaranteed not to increase during the term of the policy.
- When you leave the UK you may continue with your policy without additional premium and continue to be covered in most countries worldwide.
- For tax efficiency, we can arrange, without additional cost, to have your policy written in trust (this is suitable only for term life insurance). The legal framework of a trust allows the sum insured to be kept separate from the deceased’s estate and therefore out of probate meaning that the money can be accessed promptly.
- If you are a company director, on top of the other benefits listed above, for your life insurance, we can arrange to have the policy premiums tax deductible from your company normal expenses. The capital insured could be as high as 20 times your total emoluments (salary + bonuses + dividends). This advantage will not be considered as a benefit in kind by HMRC (the UK tax office) and therefore will attract neither income tax nor national insurance contributions.
Example of life insurance benefits and prices
Here is an example of life insurance benefits and premiums for a 35 year old man, who doesn’t smoke (premiums are usually more than double for smokers).
- Term of the life insurance: 30 years (a smaller term will reduce the premium)
- If the insured person moves abroad, he may continue with his life insurance policy with the same premium.
- Sum assured: £1,000,000
- Premium: approximately £52 per month, guaranteed not to increase in the future.
Your options in terms of income protection in the UK as an individual
What do you consider to be your most important asset? Your car or your home? Have you insured these assets? Of course! However, what about your health and the ability to earn an income to pay for your lifestyle? Have you considered how you would pay for your rent or mortgage, your utility bills, your food and clothing or your car and house insurance if you became ill or had an accident and were not able to work for a period of time or ever again? Friends and family may be able to help for a short period of time but in the longer term, how would you finance your living costs? This is where an income protection policy will help.
Income protection insurance is an insurance policy which will pay a monthly income replacement if the insured person is unable to work following an accident or illness. It can pay an income replacement until retirement, death or return-to-work.
Example of income protection benefits and prices
Here is an example of life insurance benefits and premiums for a 35 year old man, who doesn’t smoke. In this example, the insured person has subscribed to an income protection policy that will continue to pay an income replacement should he not be able to work again until retirement at age 67. This example is a full income protection:
- Salary: £50,000 per year.
- Maximum insurable : approximately £30,000 per year, £2500 per month
- The benefits paid are tax free until the end date of the policy
- Waiting period (before the benefits are payable) : 3 months
- Premium: approximately £45 per month, guaranteed not to increase in the future.
This person would receive £2500 per month until age 67, death or return-to-work, whichever arrives first.
There are policies that will pay a replacement income until the end of the policy as in the example above, or there are also short-term policies that will pay a replacement income for a limited period of time such as 2 years maximum or 5 years maximum per claim. When the period of income replacement has ended, the policy can still continue in case the need arises for another claim to be made in the future. However, if the insured person is still unable to work they will no longer receive any income replacement from their policy for this claim.
Using the same criteria of the example above:
– a policy that pays an income replacement for a maximum period of 5 years would cost in the region of £38 per month,
– a policy that pays an income replacement for a maximum period of 2 years would cost in the region of £25 per month.
There is also the option to add ‘index-linking’ to life insurance and income protection policies: just as your salary tends to rise to keep in line with the cost of living, should the need arise and a claim is made, the sum paid to you will be future-proofed meaning that it will rise in line with a measure of inflation – companies use either the consumer prices index (CPI) or the retail price index (RPI). This option will increase the monthly premium slightly each year at the anniversary of the start of the policy.
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