How to compare income protection to state benefits
As people that work within the protection industry we are all well aware of the financial impact could be if a client fell ill and was unable to work. As an industry we are also aware that for most clients state benefits will not be sufficient to cover their essential expenditure. Showing the client what state benefits might be available in the event of them being unable to work (and how much less than their current income this might be), however is more difficult as each clients scenario will be slightly different. In this article we highlight a range of free tools that advisers and their clients could use to help understand what state benefits might be available, the level of income they may provide and ultimately how income protection could lead to better financial resilience.
ABI – ‘Percy The Protection Calculator’
Percy the protection calculator is a tool aimed at the general public which was initially launched by the ABI in February 2019. It has been designed to help consumers obtain an estimation of likely income if they become injured or ill and as a consequence are unable to work.
It starts by capturing basic details about the persons household in terms of;
- their date of birth,
- their partners date of birth,
- current entitlement to universal or tax credits,
- Children’s gender and date of birth(s),
- Other adults living in the household and;
Following the capture of general household details, the calculator then collects information about the property the person is living in in terms of where this is, whether they own the property, rent, live with parents etc. and the relevant costs involved along with details of council tax.
Lastly the tool captures details of the household income, whether this via employed or self employed earnings, what sick pay entitlement they have in place, if they already have income protection and any childcare costs.
On completion of these details, which in my case took around 5 minutes, the user is then presented with a screen highlighting their current take home income compared to what they might receive in state benefits if they fell ill and were unable to work. The state benefits are shown over the first 28 weeks of illness, week 29 to 81 and after 81 weeks to highlight how these benefits change depending on the length of time they are unable to work for.
For many this will provide the stark reality that state benefits will not be sufficient to cover their monthly expenditure. From an advisers point of view it will also provide them with the ability to run a second scenario where income protection is in place. Although in this circumstance the tool is relatively basic as it defaults to a 28 week deferred period (with no ability to change this) it will none the less enable an adviser to highlight the difference in potential income if the client were to take out protection and have the discussion with the client about suitable deferred periods whilst also discussing what state benefits might still be available.
To view this calculator click here
Policy in Practice – Benefit and Budgeting Calculator
Policy in Practice are a software company that work with councils, government, housing and community organisations to target and improve welfare support for people.
Their ‘Benefit and Budgeting Calculator’ has been designed to help consumers find out what benefits they could be eligible for, how to claim these and how these benefits may be affected if they start to work. As such this tool does not consider income protection within the calculations.
Like the ABI tool, the benefit and budgeting calculator captures details of the users household, property and income/earnings. Once these details have been input it shows the current entitlement to state benefits. For some clients this may be particularly useful as it will highlight entitlement to benefits such as child tax credits and child benefit that they might not have been aware they are entitled to.
What will be particularly interesting for advisers however, is that the results screen also enables you to “change your earnings”. In doing this the user is able to toggle the wages per month up or down to see how this impacts the benefits they might receive. Unfortunately this does not enable you to state that the client is unable to work through injury or illness and as such statutory sick pay is not included in the benefits, however it does show the potentially stark contrast between what someone might receive from the state compared to earned income.
To view this calculator click here
Other tools available in this space are Turn2Us’s Benefits calculator and entitledto’s Benefits Calculator. The entitledto benefit calculator also provides a useful “Better off calculator” which is designed to highlight how a person claim state benefits may be better off by working. This also provides the ability to reduce or show no earned income and therefore highlight what benefits may be available if the client was not in work (although this will not include statutory sick pay).
Providing generic figures to a client that statutory sick pay would provide this amount and another benefit may provide that may not always have the desired effect when trying to highlight the need for income protection. The ability to show a client what state benefits they would actually be entitled to based on their own unique scenario may be the lightbulb moment that many need, especially if you can show this side by side with their current income to highlight how much of a difference there may be.