So, obviously you are strong, maybe even immortal. So am I.
So are most people. I’ve just turned 40, and do you know – I’ve started to get a few aches and pains and I cant’ throw off a cold like I used to.
So, unless I am lucky I’ll probably have time off work for health reasons – actually, i know I will, I have a nose operation and a foot operation. The nose op will put me off work for 2 weeks. That’s handleable. The foot op will put me off work for 2 weeks…’if thingsgo well’. Three months is the downside. That’s awkward.
So, clearly the credit crunch isn’t the only thing that could have an impact on my earnings and it’s the same for you.
But, the state will help you if anything long term happens. Right? Well, possibly, but not as much as you’d hope.
The new Employment and Support Allowance (ESA) replaced Incapacity Benefit last month. That’s the state benefit you need if you are unable to work owing to accident or sickness.
It’s a bit rubbish though – much rubbishier than you need although better than nothing. Just. There is a real ablancing act for all state benefits – they don’t want them to be so good they encourage you to be ill and discourage you from going back to work, so the ESA is very basic.
For some employed people, you may get actual sick pay – maybe 3 months full, followed by 3 months half pay. These are generally large companies and you should check what you do recieve, it can be quite sobering. But, more than likely, you won’t have any sick pay benefit so what happens then?
Well, you will be eligible to receive Statutory Sick Pay after four days of illness. Your employer has to provide you with a minimum of £75.40 per week for 28 weeks. As an employee you are able to apply for ESA after 28 weeks.
If you are self-employed then you can apply to be assessed for ESA after the first four days of any illness.
If you apply for ESA you will be tested for eligibility during the 1st 13 weeks. During this period, you will receive a benefit of £60.50 per week (or £47.95 if you are under 25 years old). This assessment is based on your ability to work rather than the extent of your illness or injury. If you fail the assessment, the benefits stop and you will have to be considered for Income Support instead.
In addition to qualifying for ESA benefit payments from the state, this assessment will also place you in one of two categories which will determine the level of benefits you receive.
If you are placed in category one, there is a reasonable expectation that you will be able to return to work again. The basic allowance in this category is £60.50 per week and there is also a further allowance, known as a Work Related Activity Component (WRAC), of £24 a week. Payment of the WRAC is conditional on you attending regular back-to-work interviews which aim to measure your progress against a back-to-work programme.
If you are placed in category two then you are severely incapacitated and not expected to return to work again in the future. The basic allowance for this category is also £60.50 per week and there is also an additional Support Component of £29 per week. You might also qualify for other state benefits, such as Disability Living Allowance.
Regardless of the category, benefits continue to be paid for the full duration that you are unable to work. This could last to state retirement age, if necessary.
With the ESA being introduced, you need to think about how much income you would need to meet your committed expenditure if you were unable to work.
Take a look at your monthly budget and remove the discretionary expenditure to come up with a realistic figure. It is the shortfall between the ESA payments and this figure that you need to plan for – either with sufficient savings that will last for a sufficient period of time, or through insurance.
Income replacement Insurance is often cheaper than you’d expect. Actually, it’s often so cheap it’s a no brainer. Not many people have it, but that’s not because it’s expensive – it’s for other reasons!
So, it’s work talking to and Independent Financial Adviser and asking about income protection. If you have accident sickness and unemployment insurance with your mortgage, it’s worth getting a comparison of removing the accident/sickness part and replacing it with income replacement insurance.
