An income protection policy is an insurance product that replaces your regular income, should you fall too ill to work, meaning you can continue to pay all your bills, cover the cost of life’s little luxuries and maintain your savings. Basically, it’s a policy that removes any financial stress so that you can focus on what matters most, getting better!

Regardless of your age, health, level of financial independence or homeowner status, you are most likely to have some form of regular financial outgoings. You are also likely to have goals and plans for the future that rely on your income and savings. 

We like to think that we’re invincible, but even Superman has his Kryptonite, and sadly we all face the risk of falling ill or becoming injured from time to time. If you weren’t able to work, and lost your income, could you cover all of your monthly bills? For many people, the answer is ‘no’. 

This guide outlines the key features of income protection insurance and answers some of the most common questions about this valuable, but less well known, product.

How does income protection insurance work?

Whether you’re employed or self-employed, income protection insurance pays you a tax-free monthly benefit amount, up to around 70% of your gross monthly pay, replacing your income if you become unable to work due to illness or injury. This regular monthly income can help to cover your bills, reducing financial worries and allowing you to focus on making a full recovery.

Like all insurance products, it is there to support you in your time of need and the great news is that last year, almost 90% of income protection claims were paid(1). So, provided you are completely truthful when applying for your policy, your insurer will be there to support you. This can be a huge weight off your shoulders.

It’s worth noting that many income protection policies also have other free services included to support your recovery and help you get back to work – services like physiotherapy and counselling. 

When does income protection insurance pay out?

For income protection insurance claims, the main thing considered is whether a medical condition prevents you from being able to do your job. If it does, then the policy should pay out, no matter what that condition may be. For example, if you’re a surgeon and you broke a finger, which meant that you could no longer work, the insurance would likely pay out. Your policy would also pay out if you were unable to perform your professional duties as a result of mental illness or a stress-related condition.

These policies generally won’t pay out if you are unable to work for non-medical reasons, such as redundancy or if you have become unemployed for any other reason. There are other insurance policies that may provide this type of cover, however, such as accident, sickness and unemployment cover.

Do I need income protection insurance?


Experts recommend that people should have enough saved up to cover three-months worth of living expenses, but the scary truth is that 20% of Brits don’t have enough saved up to live for even one month without an income(2).

But even if you have managed to build up a decent pot of savings, would you actually want to use them? We all have financial hopes and dreams, so you will likely have other plans for your hard-earned savings. Perhaps you are saving for the deposit on a house, to buy a car that you’ve been dreaming about, or to take your family on holiday.

Having an income protection policy may mean that you never need to dip into your savings pot, and also that you can continue to squirrel away the same amount of money each month, keeping you on track to hit your financial goals.

If you and your family rely on your income to cover regular living costs you should consider purchasing an income protection policy to ensure that your lifestyle would remain unaffected if you were ever unable to work due to ill health.

How much income protection insurance do I need?

The answer to this question really depends on your personal situation and preferences. That said, here are a few things to think about when deciding how much cover to take out:

  • What are your regular monthly expenses? Include your rent or mortgage payments.

  • How much income would you need to live comfortably each month?

  • How much employer support would you receive if you fell ill?

  • If you’re happy to use your savings if you become unable to work, how long would they last?

  • How long would you need the insurer to pay your monthly benefit for? This could be until retirement or just for a couple of years.

What is a deferred period?

Income protection policies normally come with a deferred period, which is the period of time that must elapse between the point when you fall ill and the point when you start receiving monthly payments from your insurer. 

This can be anywhere from seven days to 12 months. Often people set their deferred period to reflect how long their employer sick pay lasts. For example, if you know that your employer will pay sick pay for three months, you might consider an income protection policy with a deferred period of three months. That way you know your insurance payments will start after the end of your sick pay. 

As a side note, it’s common for people to overestimate the amount of sick pay they are entitled to, so be sure to double-check the employee benefits that you’re entitled to - don’t assume anything!

If you’re self-employed, you will almost certainly not receive any sick pay. You should, therefore, consider policies with shorter deferred periods, to reduce the gap between your income ending and your income protection policy kicking in.

What about support from the government?

The reality is that, while there is some financial support in place from the government for people who are unable to work, the amount is low and the criteria to qualify is stricter than you might think. For example, did you know that the standard allowance for universal credit for a single person over the age of 25 is only £409.89 per month? It is even less for people under 25 and will also be lowered if you have savings, among other factors.

For the vast majority of us, it simply wouldn’t be enough to maintain our current lifestyle.

How much does income protection insurance cost?

The price for income protection insurance is dependent on a number of factors. In general, a policy will be more expensive the older you are, the more cover you take out and the riskier your occupation. 

There are short term or ‘budget’ policies, where the monthly insurance benefit is only paid out for a fixed period of time, say 12 or 24 months. These policies are popular among younger people, as they are significantly cheaper, but still offer valuable benefit and peace of mind. 

You may find that the cost of an income protection policy is less than you think. In fact, UK income protection insurance can cost as little as £10 a month!

So, for the price of a Spotify subscription, income protection insurance could guarantee your ability to continue paying for your actual Spotify subscription, as well as your Netflix, Amazon Prime, phone bill, BT Sport, internet and whatever other subscriptions you pay for on a monthly basis!? If you ask us, it’s a bit of a no brainer!

How can I buy income protection insurance?

At Cavendish Online, we can help you work out exactly how much income protection insurance you need, and which insurer is best suited to you.

Call 01392 241 850 to speak to one of our insurance specialists, who can guide you through the process and support you in choosing the best cover for you and your family.

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