Should I get income protection?

Income protection policies help people plan for times when they might not be able to earn a living through no fault of their own.

Income protection insurance can provide a potentially vital financial safety net for families, yet it remains widely misunderstood or overlooked by many.

With rising living costs and economic uncertainty, safeguarding your income against unforeseen circumstances is more important than ever.

Let’s look at what income protection insurance is, why you might need it, when you might not, plus the key considerations when shopping for a policy.

Income protection explained

Income protection insurance is a policy designed to provide a regular income if you’re unable to work due to illness, injury, or disability.

Unlike other forms of ‘protection’ insurance, such as life insurance or critical illness cover, income protection focuses on replacing a portion of your earnings over an extended period, helping you maintain your lifestyle and meet financial commitments.

The way it works is straightforward. You pay a monthly premium to an insurer, and in return, the policy pays out a tax-free monthly sum – typically 50-70% of your pre-tax income – if you’re unable to work for a specified period.

Policies often have a waiting (or deferral) period, which can range from a few weeks to several months, during which you must be unable to work before payments begin. This waiting period can be tailored to your circumstances, with shorter periods generally leading to higher premiums.

Payments continue until you’re able to return to work, the policy term ends, or you reach retirement age, depending on the policy’s terms.

Some policies also offer additional benefits, such as rehabilitation support to help you return to work or cover for specific conditions like back injuries or mental health issues.

Income protection is particularly valuable for those whose financial stability depends on their ability to earn, offering peace of mind that bills, mortgages and daily expenses can still be covered during difficult times.

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Why you might need income protection

The primary reason to consider income protection is the risk of serious illness or injury that prevents you from earning an income.

In the UK, millions of people face long-term health challenges that disrupt their ability to work. Over 2.8 million people were economically inactive due to long-term sickness in 2024, according to the Office for National Statistics (ONS), a figure that highlights the vulnerability of relying solely on personal savings or statutory benefits.

Serious illnesses, such as cancer, heart disease, or mental health conditions, can strike unexpectedly, often requiring extended recovery periods.

Similarly, accidents – whether a car crash or a workplace injury – can lead to temporary or permanent disability, cutting off your income stream.

Statutory Sick Pay (SSP) in the UK provides only £118.75 per week (as of 2025) for up to 28 weeks, which is unlikely to cover most people’s living expenses, especially if you have a mortgage, rent, or dependents.

 Savings can quickly dwindle and benefits such as Universal Credit may not bridge the gap adequately. Income protection can provide a more substantial, reliable income, allowing you to focus on recovery without the added stress of financial hardship.

Self-employed individuals are particularly at risk, as they lack access to employer-provided sick pay. Freelancers, contractors, and small business owners often face immediate financial strain if they’re unable to work.

Even salaried employees may find their employer’s sick pay scheme, typically a few months at full or half pay, insufficient for prolonged absences.

Beyond health-related risks, income protection can also be a lifeline for those with significant financial commitments, such as young families or individuals with large mortgages. Losing your income could jeopardise family stability, making income protection an essential consideration for parents.

Reasons why you wouldn’t need it

While income protection is valuable for many, it’s not necessary for everyone. Certain circumstances may reduce or eliminate the need for a personal policy.

If you’re employed and benefit from a robust workplace protection scheme, you may already have adequate cover. Some employers offer generous sick pay packages, covering full or partial salary for extended periods, or provide group income protection schemes as part of their benefits package.

These policies, often cheaper due to collective bargaining, may make a personal policy redundant. However, it’s crucial to review the terms. Some schemes only cover specific conditions or have shorter payout periods.

Individuals with substantial savings or alternative income sources may also forgo income protection. For example, if you have enough in savings to cover living expenses for several years, or if you have passive income from investments, rental properties, or a pension, you may not need the additional security of a policy.

Similarly, those with a partner or family member who can fully support household finances during a period of illness might feel less urgency to purchase cover.

People nearing retirement or with no dependents may also find income protection less relevant. If you’re close to receiving a pension or have paid off major debts like a mortgage, the financial impact of losing your income may be minimal. Additionally, some policies don’t cover individuals over a certain age, typically 65, which aligns with retirement for many.

Finally, if you work in a low-risk profession and have excellent health, you might perceive the risk of needing income protection as low. However, this assumption itself carries risks, as unexpected illnesses or accidents can affect anyone, regardless of lifestyle or occupation.

Things to look out for when buying a policy

Choosing the right income protection policy requires careful consideration to ensure it meets your needs and offers value for money.

Here are key factors to keep in mind:

Shop around: Premiums and policy terms vary widely between insurers. Use comparison websites or work with a broker to explore options from multiple providers. Look at the percentage of income covered, the deferral period, and any additional benefits, such as rehabilitation support or premium waivers during unemployment.

Consider speaking to an adviser: An independent financial adviser can help you navigate the complexities of income protection options, ensuring the policy aligns with your financial situation and goals.

Understand exclusions and eligibility: Insurers may exclude pre-existing medical conditions, mental health issues, or high-risk occupations (e.g., construction or professional sports). Disclose your full medical history and job details to avoid having claims denied later. Some conditions, like chronic illnesses, may preclude you from getting cover or increase premiums.

Check policy flexibility: Ensure the policy allows adjustments, such as changing the deferral period or coverage amount, as your circumstances evolve. Also, check whether premiums are guaranteed (fixed) or reviewable (subject to change), as this can affect the long-term affordability of the policy.

Cost vs. coverage: While cheaper policies may seem appealing, they often come with shorter payout periods or stricter terms. Balance affordability with comprehensive cover and explore policies with back-to-work support to reduce long-term costs.

In conclusion, income protection insurance is a crucial consideration for many in the UK, particularly those with dependents, significant debts, or no alternative financial safety net.

By understanding how it works, assessing your need, and carefully selecting a policy, you can protect your financial future against the unpredictability of illness or injury.

Always consult with professionals if you’re in any doubt and compare options to find a policy that offers both security and peace of mind.

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