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Do I need income protection insurance?

Find out more about the least understood (but probably most useful) personal protection policy

A photo of Dom Limberg, the author

By Dom Limberg

Published on: 13 November 2021

4 min read

Do I need income protection insurance?

You will probably have heard about income protection insurance but most of us don’t actually know enough about it. 

This is a one size fits all type of cover and will work for most people’s occupation and cover most of the things that might stop you from working. The facts are that income protection insurance is to replace your regular income if you can’t work due to illness or injury. 

There are lots of physical and mental problems that might prevent you from working for weeks, months, or even years. 

In this section, we try to answer your questions about do you really need income protection insurance. Getting income protection insurance can give you peace of mind and the level of cover you need to protect your family if you can’t work. 

What does income protection insurance do? 

Income protection insurance pays out monthly to replace your income or salary if you’re unable to work due to sickness, accident or injury. 

You’ll receive a monthly benefit which you will select when you take your cover out which can usually be up to 60% of your income (including salary, bonus, dividend etc.). This monthly payment can be used to pay for mortgage or rent, household bills and other costs of living expenses. 

Top income protection insurance claims UK: 

  1. Musculoskeletal (1 in 5 claims) 
  2. Fractures (1 in 5 claims) 
  3. Cancer (17% of claims) 
  4. Mental health problems (15% of claims) 
  5. Covid-19 (4% of claims) 

You can find out more about income protection insurance in our guide ‘Income protection insurance explained’.

Who is income protection for? 

The main purpose of income protection insurance is to make sure that you are able to continue to pay your bills if you can’t work. You can choose a short term or long term income protection policy depending on your needs and budget.

Ultimately, income protection insurance is designed for: 

  • Employed workers (e.g. full-time or part-time) 
  • Civil servants 
  • Public sector workers 
  • Self-employed 
  • Company directors 
  • Contractors 
  • Sole traders 

Income protection is not for: 

  • Unemployed (or redundancy/unemployment cover)
  • Workers aged under 18 years of age 
  • Workers aged over 70 years of age 

When do I need income protection insurance? 

If you work (either employed or self-employed) and you have financial commitments then you should consider income protection insurance. Income protection covers you if you become ill or injured, and can help you pay essential bills until you can return to working as normal.

There are endless potential reasons why you might need to claim on your policy, as you can see above. Ultimately, if your doctor or GP has signed you off work for a period of time (usually between 1 month and 2 years) then you should be able to claim. 

According to Legal & General’s Deadline to the Breadline report 2022, for the average UK household: 

  • £2,431 of savings 
  • £610 of debt 
  • 42% of employed adults would be in financial difficulty in 1 month 
  • 90% were concerned about rising costs of living 

Current SSP rules in the UK (2023): 

  • Employer can claim £99.35 per week 
  • Payments can be claimed for 28 weeks 

You must also be eligible to claim SSP and you can check if you are on the Gov.uk website.

What are the advantages of income protection insurance? 

There are many pros and cons of income protection insurance cover, here are several of the top benefits: 

  • Provides you with a monthly income if you can’t work 
  • You can choose short term or long term income protection (depending on your budget)
  • Will pay your bills and outgoings 
  • Gives you chance to recover properly from your illness of injury 
  • No unnecessary financial stress 
  • Peace of mind that you have protection in place 
  • Affordable monthly premiums to protect your income 
  • Any pay out will be tax-free 
  • You can defer the start of your claim payments to reduce costs
  • Provides cover for almost any sickness or injury 
  • Flexible cover options (most often 12 months to 24 months of payments)

There are also several key disadvantages to income protection insurance that you might also want to consider. 

  • Can be expensive (especially for older people) 
  • Not available to some people with certain medical conditions 
  • Not available for some high risk jobs 
  • Options can also be confusing 
  • Won’t usually pay out for 4 weeks minimum or more (a waiting period or ‘deferred’ period)
  • Age limits (18 to 70) 
  • Maximum cover (usually 60% of your income) 

You can buy income protection insurance either online or you can speak to an insurance specialist

You should be careful when buying income protection insurance online, especially if you don’t really understand what you need. It might be worth getting advice from an income protection insurance expert if you need help. 

Note: If standard income protection insurance is out of budget, there are other options for cover. Personal accident insurance or guaranteed sick pay can also provide you with some cover, usually for a fraction of the cost.

Resources

ABI – Payouts for bereavement, illness, and injury claims top £18.6 million a day

COVER magazine – Only 7% of UK adults have critical illness or income protection

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