Most people insure their home, their car and even their mobile phone. Yet the one thing that pays for all of those, your income, is often left completely unprotected.
If illness or an accident meant you couldn’t work for several months, or even years, how would you continue paying your mortgage, rent or household bills?
It’s not a question many people like to think about, but it’s one of the most important financial planning conversations you can have.
What Is Income Protection Insurance?
Income protection insurance provides a regular monthly income if you’re unable to work because of illness or injury.
Unlike critical illness cover, which pays a one-off lump sum after being diagnosed with a specified condition, income protection is designed to replace part of your salary while you’re unable to work.
Typically, policies pay between 50% and 70% of your gross income, helping you cover everyday living costs until you’re able to return to work or until the policy ends.
Who Should Consider Income Protection?
Income protection can benefit almost anyone who relies on their salary, but it’s particularly worth considering if you are:
- Self-employed
- A company director
- The main earner in your household
- Paying a mortgage
- Supporting a family
- Receiving limited sick pay from your employer
Many people assume they’ll be supported if they become ill, but statutory sick pay is relatively modest and may not come close to covering normal household expenses.
What Does It Cover?
Policies usually pay out if you’re unable to work because of:
- Back problems
- Mental health conditions such as stress, anxiety or depression
- Cancer
- Heart conditions
- Musculoskeletal injuries
- Serious accidents
- Many other illnesses that prevent you carrying out your job
Every insurer has different definitions and exclusions, which is why professional advice is important.
How Long Does It Pay For?
This depends on the policy you choose.
Some policies provide payments for a fixed period, such as one, two or five years.
Others continue paying until:
- You return to work
- You retire
- The policy ends
While longer-term cover generally costs more, it provides significantly greater financial security if you experience a serious illness.
When Do Payments Start?
Income protection doesn’t usually begin immediately.
You’ll choose what’s known as a deferred period, which is the length of time you’ll wait before payments begin.
Common options include:
- 4 weeks
- 8 weeks
- 13 weeks
- 26 weeks
- 52 weeks
Choosing a longer deferred period can reduce your monthly premium, particularly if your employer offers generous sick pay.
Is It Expensive?
Many people are surprised at how affordable income protection can be.
The cost depends on factors including:
- Your age
- Your occupation
- Your health
- Your income
- The level of cover
- The deferred period
- The policy end date
Higher-risk occupations generally attract higher premiums, while office-based professions often benefit from lower costs.
Isn’t Critical Illness Cover Enough?
This is a common misconception.
Critical illness cover only pays out if you’re diagnosed with one of the illnesses specifically listed in your policy.
Income protection is much broader.
For example, if you’re signed off work for several months with severe back pain or stress, you may not qualify for a critical illness payout, but income protection could still provide a monthly income.
Many people choose to have both types of cover because they serve different purposes.
Can Self-Employed People Get Income Protection?
Absolutely.
In fact, self-employed people often have the greatest need for income protection.
Without employer sick pay, your income could stop almost immediately if you’re unable to work.
Income protection helps provide financial stability while you recover, allowing you to focus on getting better rather than worrying about how the bills will be paid.
When Should You Arrange Cover?
The best time is while you’re healthy.
As with most insurance, younger and healthier applicants generally receive more favourable premiums and have access to a wider range of policies.
Waiting until you develop a medical condition could limit your options or increase the cost of cover.
Getting the Right Advice
Income protection isn’t a one-size-fits-all product.
The right policy depends on your income, employment status, existing benefits, mortgage commitments and long-term financial goals.
A qualified mortgage and protection adviser can explain your options, compare policies from different insurers and recommend cover that’s appropriate for your circumstances.
Protecting your income is ultimately about protecting your lifestyle. Your mortgage, your family and your future all depend on the money you earn each month. Making sure that income is protected can provide valuable peace of mind should the unexpected happen.
Frequently Asked Questions
Is income protection insurance worth it?
For many working people, especially those with a mortgage or dependants, income protection can provide valuable financial security if illness or injury prevents them from working.
Does income protection cover redundancy?
No. Income protection covers illness and injury, not redundancy or unemployment.
How much income can I insure?
Most insurers allow you to insure between 50% and 70% of your gross annual income, although this varies between providers.
Can I have income protection if I’m self-employed?
Yes. Income protection is often particularly valuable for self-employed people who don’t receive employer sick pay.
Will income protection affect my mortgage application?
No. In fact, having appropriate protection in place can help safeguard your ability to continue making mortgage repayments if you’re unable to work.
