Financial planning is an important aspect of safeguarding your finances for the future. Having a full picture of your cash flow, savings, insurance and any debts is essential to reduce any money worries you may have and to ensure you hit your financial goals in the future. An often overlooked part of financial planning is insurance - especially income protection insurance.
In this article, we will explore the definition of financial planning, revisit what income protection insurance is and understand how the two go hand in hand, highlighting its importance, benefits, and the considerations to take into account when integrating it into a financial strategy. Let’s get started.
What is income protection insurance?
Income protection insurance is an insurance policy that pays out if you are unable to work because you are ill or have an accident and get injured. You will receive this regular income until you retire or are able to return to work, or come to the end of your agreed benefit period.
What is financial planning?
Financial planning is the process of looking at your financial situation and building strategies to achieve your financial goals - both short-term and long-term. Some common financial goals include paying off debt, being able to retire by a certain age, building a pot of emergency savings or being able to save for a house deposit.
Building a financial plan allows you to make the most of your assets and can reduce your money stresses by ensuring you have an emergency fund for any emergencies.
You can either create your financial plan yourself, or enlist the help of financial planning professionals.
The importance of income protection insurance in financial planning
As we have already mentioned, financial planning helps to ensure that you're ready for the future by understanding your income, savings, insurance, and debts. One often overlooked aspect is income protection insurance, which can be an essential safety net if you are unable to work due to illness or injury.
Income protection insurance ensures you continue to receive a regular stream of income when you’re unable to work due to injury or illness. This support will help to maintain your living standards and meet financial commitments, such as mortgage payments and daily expenses, providing financial stability during already challenging periods.
Effective financial planning involves assessing potential risks and having strategies in place to manage them. Income protection insurance can be an essential strategy for managing income-related risks, offering yourself and your family protection against the impact of unexpected health issues.
On top of this, income protection insurance can be important for maintaining long-term financial stability, especially if you work in a high-risk industry such as construction or professional sport. Extended periods without work can have a huge negative impact on your ability to achieve long-term goals like retirement savings. By safeguarding your income through income protection insurance, you are helping to protect your savings and investments.
Benefits of income protection insurance
With the impacts of the cost of living crisis growing ever more persistent, more and more people are viewing income protection insurance as a worthwhile investment to safeguard their finances. In fact, a record-breaking 247,000 individual income protection policies were sold last year!
There are a number of benefits of income protection insurance that make it a no-brainer as to why an increasing number of people are seeking it. For example, most income protection policies offer comprehensive coverage, covering a wide range of illnesses and injuries.
On top of this, money worries are the most common cause of anxiety in the UK, so the peace of mind achieved by having a precaution in place just incase the worst happens cannot be overstated!
How to integrate income protection insurance into your financial plan
Integrating income protection insurance into your financial plan isn’t a difficult thing to do, however it involves a few key steps that you need to complete to ensure you have your priorities in order and that you have the right coverage for your needs.
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Assess your financial situation: Review your current financial picture, including your annual income, your monthly expenses and commitments, any savings and debts. Once you’ve got a comprehensive overview of your finances, you should be able to identify any gaps where a loss of income could impact your family and financial stability.
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Determine your cover needs: When purchasing any insurance product, you need to calculate how much cover you actually need. Use the assessment you did in step 1 to see where you’re at and how much you need to spend every month on essentials.
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Compare policies: Not every income protection policy is the same, so ensure you read the fine print for each and purchase a policy that works for you and your requirements.
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Balance with other financial priorities: The main aspect of incorporating income protection insurance into your financial plans is balancing it with your other financial priorities. Ensure that your insurance premiums fit to your budget without compromising your other financial goals, and adjust your financial plan to accommodate these regular payments.
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Regularly review: Make sure you’re reviewing both your income protection policy and your overall financial plan every so often so that they both continue to align with your current situation and financial goals for the future.
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Take advice from a professional: You can do this for yourself or seek the help and expertise of a qualified financial adviser.
By following these steps, you can effectively integrate income protection insurance into your financial plan, providing a reliable buffer against potential income loss and enhancing your overall financial security.
How Wiltshire Friendly can help
Wiltshire Friendly is a specialist income protection provider. We provide income replacement cover to individuals, employers and amateur, semi-professional and professional sports players who have lost their income due to illness or injury preventing them from working.
To understand how we can help you with the insurance aspect of your financial planning, make a claim, apply for increased cover or discuss your individual requirements with us, please contact us today.