Do you need income protection insurance?

No one likes to think that something bad will happen to them. But each year close to a million people find themselves unable to work due to a serious illness or injury. If you couldn’t work due to a serious illness, how would you manage? Could you survive on savings, or on sick pay from work? If not, you’ll need some other way to keep paying the bills – and you might want to consider income protection insurance.

What is income protection insurance?

Not sure what something means? Have a look at our Protection insurance glossaryopens in new window.

Income protection insurance is a long-term insurance policy to help you if you can’t work because you’re ill or injured.

  • It replaces part of your income if you can’t work because you become ill or disabled.
  • It pays out until you can start working again, or until you retire, die or the end of the policy term - whichever is sooner.
  • There’s a waiting period before the payments start. You generally set payments to start after your sick pay ends, or after any other insurance stops covering you. The longer you wait, the lower the monthly payments.
  • It covers most illnesses that leave you unable to work, either in the short or long term (depending on the type of policy and its definition of incapacity).
  • You can claim as many times as you need to, while the policy lasts.

Speak To An Adviser

With income protection insurance, everything depends on getting the right policy – so it’s best to get advice from an independent financial adviser or broker.

It’s not the same as critical illness insurance, which pays out a one-off lump sum if you have a specific serious illness.

It’s not the same as short-term income protection, which also pays out a monthly sum related to your income, but only for a limited period of time (normally between two and five years) and can cover fewer illnesses or situations.

Do you need it?

According to the ABI, one million workers a year find themselves unable to work due to a serious illness or injury.

It doesn’t matter whether or not you have children or other dependants – if illness would mean you couldn’t pay the bills, you should consider income protection insurance.

You’re most likely to need it if you’re self-employed or employed and you don’t have sick pay to fall back on.

Check what your employer will provide for you if you’re off sick. Read more in What financial protection might you already have?

Who doesn’t need it?

You might not need income protection insurance if:

  • You could get by on your sick pay – for example if you have an employee benefits package which gives you an income for 12 months or more.
  • You could survive on government benefits – but they might not be enough to cover all your outgoings
  • You have enough savings to support yourself – remember that your savings may need to see you through a long period.
  • You could take early retirement – if you’re near retirement age, perhaps you could afford to retire early. If you are unable to return to work you may be entitled to take your pension early.
  • Your partner or family would support you – perhaps your partner has enough income to cover everything the two of you need.

How much does it cost?

How much you pay each month will depend on the policy and your circumstances. Usually income protection insurance covers a wide range of illnesses and situations and has the potential to pay out for many years.

The cost of a policy will vary based on a number of factors, including:

  • Age
  • Whether you smoke or have previously smoked
  • Health (your current health, your weight, your family medical history)
  • Job
  • The percentage of income you’d like to cover

You can find out more in our guide on How and where to buy income protection insurance.

Use our FAQ guide, which covers the basic questions that you might want to ask an adviser, or the questions they will ask you.

Other types of insurance to consider

There are also several other insurance products you can use to protect yourself from money problems if you’re ill or injured or if you die and you want others to be protected.

Do you need life insurance? This product provides some financial support to your dependants if you die.

Do you need critical illness insurance? This type of policy will provide you with a tax-free ‘lump sum’ if you’re diagnosed with a serious illness covered by your policy.

Do you need payment protection insurance? Payment protection insurance will cover selected payments, such as your mortgage, if you can’t work because you’re ill, had an accident or get made redundant.

Do you need short term income protection? This product will cover your essential outgoings if you can’t work for a short period of time.

Read our at-a-glance guide to find out more about the differences between protection products