We insure our homes, cars and phones without thinking twice, yet the thing that pays for all of them, our ability to earn, often goes unprotected. Income protection is designed to replace part of your income if you can’t work because of illness or injury. Here’s how it works and what to look for.

What is income protection?

Income protection pays you a regular monthly income if you’re unable to work because of illness or injury. Payments continue until you recover and return to work, the policy term ends, or you retire, depending on the policy. Unlike critical illness cover, it isn’t limited to a list of specific conditions. Common claims include back problems, mental health conditions and injuries, not just serious illnesses.

How much does it pay?

Policies usually pay a percentage of your gross income, often somewhere between 50% and 70%. The limit exists so that there’s still an incentive to return to work, and because benefits paid from a personal policy are normally tax-free.

The deferred period

The deferred period is how long you must be off work before payments start. It might be as short as a week or as long as a year. The longer the deferred period, the lower the premium. A good approach is to match it to any sick pay your employer provides, or to how long your savings would last. There’s little point paying for cover that starts while you’d still be receiving full pay.

Key features to compare

• Definition of incapacity: “own occupation” cover pays if you can’t do your own job. Other definitions are stricter, requiring you to be unable to do any suitable job or certain daily tasks. Own occupation is generally the most comprehensive.
• Full-term vs short-term cover: full-term policies can pay until the end of the policy term, often retirement. Short-term (or limited payment) policies pay for a set period per claim, typically one, two or five years, and are usually cheaper.
• Guaranteed vs reviewable premiums: guaranteed premiums stay fixed, while reviewable ones can go up over time.
• Additional support: many insurers now include rehabilitation services, virtual GP access and mental health support at no extra cost.

Who needs it?

Almost anyone who relies on their income could benefit, but it’s especially important if you:

• Are self-employed and have no sick pay
• Have limited or short-lived employer sick pay
• Have a mortgage, rent or dependants who rely on your earnings
• Don’t have enough savings to cover several months without income

Statutory Sick Pay and state benefits are relatively low and are unlikely to cover most households’ regular outgoings.

Policy features and definitions vary between insurers, so this is a general overview only.

We’ll help you work out the right level of cover, deferred period and policy type for your job and budget, and compare policies across the market. Get in touch for a free consultation.