Reliance on State Incapacity Benefits Not Enough

Lack of protection in the UK

Protection against ill health sees Britain come in second last in the Demos Think Tank tables which ranks twelve Western countries. The UK lags behind the majority of Western Europe, the USA, Canada and even Poland, and yet despite the fact that UK state aid measures so low down in these ranking; only one in ten of the working public in the UK purchases income protection insurance. In other words Britons do not protect themselves financially in the case of being unable to work.

The ‘squeezed middle’ category is the most at risk; these are the people earning between £16,000 and £50,000 per annum. The reason why they are most at risk is because they have become accustomed to a certain standard of living, and claiming state benefits means no longer being able to maintain this standard of living.

Britons who are no longer able to earn a living due to sickness or disability can expect state support of approximately 38% of the last income earned. Compared to 60% paid in France and Germany and 74% in Holland, this shows us there is a very substantial gap.

What is really surprising is not the fact that Western European countries enable incapacitated people the ability to maintain close to their customary standard of living – the really big shock is that in the USA the state pays 51%.

State benefits overestimated by public

As a rule, people resident in the UK, overestimate what the state pays to people who are unable to work due to illness. The same Demos, Think Tank report reveals that people perceive that the disabled receive between £100 and £120 a week in benefits. The real figure is much closer to an average of £70 a week.

This deficit is only made worse by the fact that so few people care to pay for their own income protection in the private insurance market. The message does not seem to be getting through that this insurance provides vital protection for the financial future of approximately 8.5 million UK families.

In the USA, 27% of earners take out private income protection and this is over double that in the UK. The combination of private cover and state benefits means that overall, the average US citizen is 36% better off than the UK worker, if or when either of them becomes unable to work over the long-term.

More income protection education needed

Experts believe that there is a substantial lack of understanding regard what financial protection products mean as well as what products are available, and there are also two serious misconceptions standing in the way of the take up on these products.

The first misconception is that the welfare state ‘will’ take care of them, and the second is that their employer will take better care of them than they actually will. It is a sad fact of life that only after people fall seriously ill that they find out fully what benefits were available. Unfortunately, by then it is generally too late!

How to get started

It is important to find out exactly what benefits are offered by employers in terms of long-term sickness cover. This may be in the form of either employer provided income protection or sick pay.

It is also important to know that there are a wide range of insurance products available which will fill the gap between the £97 a week paid in state employment support allowance and the amount needed by a family to actually get by.