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Do you need income protection insurance?

LifeSearch author John Rogers
13 min read

by John Rogers, Marketing Executive

See author bio

John is a Protection expert, having worked in our customer facing teams and best practice teams, and now is immersed in Protection Content and Marketing. See author bio

Guide last reviewed 29 Sep 2022

Earning money is a fundamental part of adult life. Yes, a lot of us will complain about getting up and going to work every day and most of us are guilty of counting down the hours until 5pm on Friday, but the truth is that we’d be totally lost without our jobs. 

Whatever it is we do to make our money, that precious paycheck allows us to put food on the table for our families and keep them warm and safe with a roof over their heads. So what happens when all that is unexpectedly taken away? The COVID-19 pandemic has highlighted to everyone that we never know what is just around the corner and most importantly, no one is invincible. That old saying ‘health is wealth’ has never rang more true. 

Most of us will encounter a handful of sick days in our working lives, but when a sick day turns into a sick month or year, you may wish you’d have taken out income protection insurance.

What is income protection insurance?

According to the ABI, one million workers a year1 find themselves unable to work due to a serious injury or illness. Income protection insurance is there to cover you if you find yourself as part of this one million. If you find yourself in a position to claim on a policy, it provides a regular tax-free income - usually between 50-70% of your salary - to help you continue paying bills, caring for your family financially, and to regain a sense of normality during difficult times. 

Between making a claim and receiving your first income protection payment, there will often be a ‘deferral period’. Whether or not you opt for a deferral period will depend on whether or not you have sufficient sick pay or savings to cover you before your payouts begin. This period can be a little as four weeks, or as long as two years - you decide. The longer your deferral period is, the cheaper your monthly premiums will be. During the deferral period, you won’t receive any money from your policy, so it’s important to put a plan in place to cover you during this time. 

Perhaps you are eligible for Statutory Sick Pay (SSP) from your employer, or perhaps you have savings to tide you over in the meantime. If this is the case, factor this in and decide on your deferral period accordingly. That way, you’ll never be totally penniless.

Once you make your claim and your deferral period is up, you could receive a regular income until:

  • You recover and are able to return to work
  • You reach state pension age and retire
  • The policy term comes to an end
  • You stop paying your premiums and your policy ends
  • You pass away

And let’s say for example you make a recovery and get yourself back to work - you are able to claim again as many times as you need to on the same policy if needs be (that is, until, the policy terms ends).

What does income protection cover?

So, when we talk about injury and illness, what exactly does that mean? Income protection will cover you for most illnesses or injuries that leave you unable to work, but the small print will differ between providers. Generally speaking however, you can expect your income protection policy to cover you for:

  • Stress-related illnesses
  • Back conditions (that couldn't have been avoided by following medical advice)
  • Cancer
  • Serious heart conditions

Currently, musculoskeletal injuries sit at the top of the list of biggest reasons2 for income protection claims, followed by mental health and cancer.

And although income protection will cover you for most illnesses and injuries, it won’t cover you for every single eventuality under the sun. Whilst every policy is a little different, you can expect not to be covered for:

  • Pre-existing conditions that you knew about before taking out the policy
  • Back pain or any injury or illness that could have been avoided, should you have followed medical advice
  • Alcohol misuse
  • Drug misuse
  • Criminal acts
  • Pregnancy (although some insurers may cover you for pregnancy-related complications)
  • War injuries or illnesses
  • Cosmetic surgery related injuries or illnesses
  • Dangerous activities without the right equipment or training

As a general rule of thumb, if it is not a completely unforeseen accident, you might struggle to claim on it.

COVID-19 and income protection insurance

Of course, the topic of conversation that is ruling the nation at the moment is the COVID-19 pandemic, and its effects on almost every aspect of our lives - particularly our finances.

At LifeSearch, we did a little nationwide research and learnt that one in four Briton’s ‘used up’ their financial safety nets3 in the first half of 2020. Well over half (57%) of us admitted that COVID-19 has caused some sort of financial pain; be that loss of income, lost savings and/or lost jobs. Some 7% say they’re now suffering ‘financial hardship’.

This raises the question of how an income protection policy may be able to help at this time. Whilst it’s still possible to buy income protection cover at the moment, many insurers have adjusted their application processes and introduced new questions around COVID-19. 

For instance, they will want to know if you have the virus or are experiencing symptoms of it, and if you have recently been in contact with someone who has the virus or if you’ve been advised to self-isolate. Insurers will be working even harder to get a full picture of your health so that they can better understand your risk of falling ill.

If you have COVID-19 at the time of applying for income protection insurance, or you are suspected to have it, then the insurer may ask you to wait until you have made a full recovery before they cover you. As always, it’s so important to be totally open and honest and answer all of the health questions truthfully. Insurers can refuse to pay claims if they find out that applicants weren’t honest, potentially leaving your family unprotected at a time of need.

If you get COVID-19 and the virus has a long-term impact on your health, preventing you from working, then your income protection policy should step in to support you financially. If you lose your job as a result of COVID-19, your policy won’t pay out. You may be able to make a claim if you have been furloughed, however. Different insurers are taking different approaches, so it’s worth checking your specific insurance policy wording.

How much does income protection cost?

Yes, protecting your income is important, but if income protection breaks the bank, then it’s rather counterintuitive. The good news is that income protection policies are generally affordable. The cost will differ, however, between person to person. That’s because there are different factors that come into play that determine the cost of those monthly policy premiums:

  • Your age
  • Whether you smoke
  • Your lifestyle (and whether you have any high risk hobbies like extreme sports)
  • Your job
  • Your health (current health, body mass index and family medical history)
  • The deferral period that you decide on
  • The income you’d like to receive each month

When deciding on the income you’d like to receive each month, consider your day-to-day living costs, any debts that you’re currently paying off and your monthly financial commitments, such as mortgage/rent payments and household bills. A life insurance broker, such as us here at LifeSearch, will be able to advise how much cover to take out if you’re unsure.

Before you look further into income protection, you probably want to see some ballpark figures in terms of cost. Here’s a few examples*:

The average cost of an Income Protection policy, to cover you until the age of 65:

Starting Age Cost to cover £1,500 monthly income*
£8.77per month
£10.21per month
£12.40per month
£15.61per month
45 £19.47per month
£27.94per month
£34.02per month


*Pricing information obtained 02/11/2022. This data is based on a client with no medical history,  a 3 month deferment period with a 2-year claim period in an administrative role.

Income protection insurance costs vary based on how you earn, what percentage you want to replace, and for how long you want cover to last. It also takes into account the usual factors such as your age, health, occupation and if you’ve any hazardous or high-risk hobbies.

Generally speaking, the younger you are, the less you will pay each month for your income protection policy. That’s why it’s always worth taking a policy out early on in life - even though you might feel that injury and serious illness is highly unlikely. Many policy premiums will increase in line with inflation and the relevant index, so the price of your premiums may change in the future. Alternatively, you can opt for a guaranteed premium option that ensures that the price stays the same throughout the life of your policy.  

From there, you can add to your policy as and when you need to, such as increasing your payout amount when you get a mortgage, so that you can ensure your policy will cover that cost if you ever come to claim. Of course, the monthly premium will go up if you’ve increased the cover amount.

Remember - if you’re serious about getting an income protection insurance policy, we recommend speaking to a LifeSearch adviser for an up-to-date quote based on your own personal circumstances and needs. 

Income protection vs critical illness cover

This all sounds pretty similar to critical illness cover, right? Sure, they both provide cover against serious illness whilst you’re still around to receive it, but of course, they also have their major differences. 

For starters, critical illness cover pays out a one-off lump sum, as opposed to regular payments. It is designed to cover you if you are diagnosed with (or have surgery for) a specified set of life-threatening illnesses. The focus is on the illness set out in the policy conditions, rather than the inability to go to work.

Unfortunately, there’s a huge number of illnesses and disabilities out there that can affect any one of us, but critical illness cover can’t cover everything. You might come across a very basic policy that covers 10 main illnesses. A slightly more expensive one will cover around 40. Some might even cover up to 100. 

Most critical illness cover policies will always include the ‘main’ illnesses. These include:

  • A coronary artery bypass
  • A major heart attack
  • Kidney failure
  • A major organ transplant
  • Multiple sclerosis
  • A stroke
  • A defined set of specific cancers

Of the two different products, income protection insurance offers a broader definition of illness and injury. You will probably struggle to find a critical illness policy to cover you for a bad back or depression, however this is pretty common with income protection. 

Also, once you claim upon your critical illness cover policy and receive your payout, the policy ends. There’s no deferral period, and a claim can be made on diagnosis. With income protection insurance, you can claim on your policy as many times as you need to within the policy term.

Income protection vs critical illness at a glance:

Income Protection  Critical Illness Cover
 Pays out regular tax-free lump sums  Pays out one tax-free lump sum
 Covers a broader definition of illness/injury  Covers a specific set of illnesses
 Focus is on being unable to work due to illness or injury  Focus is on the illness diagnosed
You can claim multiple times during the policy term  Once you claim, the policy ends

Income protection for the self employed

Did you know that a third of people in the UK have no more than £600 in savings5 and 1 in 10 have no savings at all? Throw being self employed into the mix and you’ve got a whole lot of financial stress and uncertainty.

By the fourth quarter of 2019, there were more than 5 million self-employed people in the UK6. That’s 5 million people with a huge responsibility to get up and put the hours in to ensure the money keeps coming. It’s all on them - no sick pay, no maternity leave and no pension. Obviously, it’s not all doom and gloom. There are benefits to being your own boss, but if you can’t work, there’s not much to fall back on. You might even have staff wages to pay, along with rent and utilities. 

For this reason, it’s arguably the self employed that benefit from income protection insurance more than anyone else. In fact, it really should be factored in as part of every self employed person’s business plan. 

And even though your income is not fixed, don’t worry - this isn’t a barrier when taking out income protection. Your monthly income is simply based on your share of the pre-tax profits generated by your business. Plus, life insurance brokers are well-versed in helping self employed people get the right amount of cover - be that for income protection, or other life insurance products.

As for the amount of cover you’ll need, it largely depends on the size of your mortgage and whether you have taken out any loans to build up the business. You’ll likely need a bit more cover than if you were employed, as you will have business outgoings to consider too, such as a mortgage or rent on a commercial property perhaps, staff wages or commercial vehicle costs. 

If you pay for your income protection policy as an individual, it will come out of your income post-tax, but as a business owner, you can opt for an executive income protection policy. This makes it an allowable business expense, and is therefore tax-deductible for your business. 

It’s important to note, however, that if you make a claim on your executive income protection policy, you will have to pay tax on the payments that you start receiving. With individual funded policies, your payments are tax-free.

Is income protection insurance worth it?

Whether you have children or other dependents or not - if you would struggle to pay your bills if you were out of work with illness or injury, then income protection is worth it. It should be something that every single person with financial responsibilities should consider.

According to Which?7, only a minority of employers support their staff for more than a year if they are off sick. Given the low level of state benefits available, everyone of working age should consider income protection. SSP is designed to provide you with some much-needed cash when you can’t work, but at £95.85 per week8 for up to 28 weeks, this may not be enough to support you - especially if you are also supporting a family.

Sure, there may be circumstances where income protection may not be worth it for you. This could be if SSP is in fact enough to support you. Perhaps you are lucky enough to work for an employer with a good sick pay scheme that would provide you with an income for 12 months or longer. You may also be able to get by on government benefits, should you qualify.

You might prefer to simply put aside a chunk of savings to cover your outgoings should you be out of work. It’s often recommended to have six months worth of wages banked away for if you fall on hard times, but remember - those savings may need to last you for much longer than you might expect.

Remember though - these are only short-term fixes for what could potentially be a long-term problem. SSP won’t last forever, and neither will your savings. Income protection however, can pay out until retirement. That’s potentially years and years of regular income. 

If your employer does have a good sick pay scheme, or you do have plenty of money to fall back on, you may still be a good candidate for an income protection policy - just with a longer deferral period.

If you have a partner who earns a high enough income to cover both your needs whilst you take some time out to recover, that could be sufficient enough support. And lastly, you may be able to retire and take your pension early, depending on your age. 

Unlike other protection products that are targeted at helping you protect your family against something happening to you, income protection is important for you. Even if you live alone, you’ve still got bills to pay, food to buy and a life to live. If illness or injury means that you cannot afford these things, then an income protection policy is worth every penny.

Convinced? We hope so. Your next move in getting covered with income protection insurance is to speak to one of our friendly experts at LifeSearch. We only choose the best policies from the best insurers, which means you get the best cover. With the help of LifeSearch advisers who know income protection like the back of their hand, getting a suitable policy is a simple and smooth process.

Everyone deserves to protect the life they love, and we’re here to make that happen. Give us a call on 0800 316 7253, request a callback or fill out our online form to get fee-free advice and a quote.

LifeSearch author John Rogers
John Rogers Marketing Executive
A ‘Searcher since 2015, John is a Protection expert having worked in our customer facing teams and best practice teams, and now is immersed in Protection Content and Marketing.
See all articles by John Rogers
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