Advances in modern medicine have helped average lifespans increase dramatically over the past half-century. But ‘health spans’, the proportion of a person’s life enjoyed in good health, have failed to keep up. As the retirement age rises, an increasing portion of the population will find themselves working while having to navigate serious health conditions, or facing the prospect of leaving the workforce due to illness.

Figures from the Office for National Statistics show 36 per cent of working-age individuals in the UK have at least one long-term health condition, an increase of 7 percentage points from 2016. Since the pandemic, the number of people who are economically inactive due to long-term sickness has increased by more than 400,000 to 2.5 million. If you are concerned about being off work in the future due to illness, you could consider income protection.

Why you should consider income protection

“Income protection is vital for those who rely on their salary to cover their living expenses, so can be useful for almost anyone,” Holly Tomlinson, a financial planner at Quilter, says. It can be particularly beneficial for those who are self-employed, the primary earner in their household, or have large financial commitments such as mortgages or dependents. The pandemic was an eye-opening experience for many, demonstrating just how easy it is to burn through your savings if you are off for an extended period.

Statutory sick pay can be paid for up to 28 weeks. After that, you can go on either employment support allowance or universal credit, depending on your location. For the self-employed, statutory sick pay will not be an option and they may need to go straight onto benefits. Some employees may benefit from group protection plans bought by their employers, but they are unlikely to be exhaustive.

Features to look for

When assessing the income protection options available on the market, Tomlinson suggests looking into the benefit period offered. “It is also critical to review any policy exclusions and pre-existing condition clauses,” she adds. Müdd recommends considering the deferral period, particularly if you are planning to rely on a combination of your employer’s protection and your own. This way you can calculate the most effective product for your circumstances.

Thomas suggests looking for index-linked plans that can keep pace with inflation, not just at the point of the claim but well into the claim as well. Business owners can consider executive income protection, which is tax-deductible for the business and can protect a larger portion of their income, as well as pension costs, National Insurance contributions, bonuses, and even dividends.

Do you really need it?

A major factor that stops people from taking out income protection is the expense. However, not having it could prove costly if the worst were to happen. “Ultimately, like any other form of protection, if you choose not to [take it out], you either don’t understand the implications or you are deliberately making the decision to self-insure because you can afford to self-insure,” Müdd says.

Income protection can provide reassurance for those who may face illness and time off work in the future. It is important to carefully review your policy’s features and consider your individual circumstances before making a decision.

As you approach your mid-50s and have built up a considerable sum of money, it is important to consider how you would manage financially if you were suddenly unable to work. The first step is to assess whether your savings would be sufficient to cover your living expenses in the event of an unforeseen circumstance. This calculation is crucial in determining whether you can rely on your savings as a safety net.

If you do have substantial savings, you will need to decide how you want to utilize them. You could choose to use your savings to cover your daily expenses for an extended period, or you may prefer to preserve that money for your retirement, travel plans, or leaving an inheritance for your loved ones. One approach to consider is a combination of both, where you use a portion of your savings to secure a more affordable insurance policy that could provide financial support in case of a long-term inability to work.

It is also essential to assess the accessibility of your savings, even if you have a high income. High earners may have significant assets and expenses that could limit the liquidity of their savings. Therefore, it is crucial to ensure that your savings are easily accessible when needed, especially in the event of a sudden loss of income.

In conclusion, financial planning is essential for individuals in their mid-50s who have accumulated a significant amount of savings. By evaluating the adequacy of your savings, considering how to best utilize them, and ensuring their accessibility, you can better prepare for any unforeseen circumstances that may arise. To learn more about financial planning and managing your money, you can visit the Investors Chronicle website for additional resources and information.