What would happen to your lifestyle if you were suddenly unable to work due to illness or injury, or were made redundant? Do you have other family members who rely on your income to cover the mortgage and other bills? If your income suddenly stopped, would you be able to maintain your overheads? This post offers valuable advice on how to protect your income if the worst should happen.

Most employers pay their staff up to three months sick pay, but they’re not obliged to. If you had to rely on statutory sick pay alone, you’d receive just £96.35 per week for a maximum of 28 weeks; it’s unlikely to cover your outgoings. And if you’re self-employed, you won’t receive anything at all.

If you’re made redundant, your redundancy package may be enough to see you through until you find a new role. But even if you’ve been with your employer for years, you are only entitled to £544 per month, and it’s up to your employer if they choose to be more generous.

It’s fair to say that without income protection in place, most people would struggle to meet their monthly commitments and support their family.

Without income protection in place, most people would struggle to meet their monthly commitments

Do I need income protection?

You should seriously consider getting income protection if:

  • You are self-employed
  • Your employer offers limited sickness benefits
  • You have dependents who rely on your income
  • You are single and responsible for household expenses

Statutory sick pay is just £96.35 per week

The questions to ask when choosing a policy

  • Will my policy last until I can work again? This depends on your policy. If you choose a short-term policy, you will be covered for between 12 to 18 months – although some insurers offer longer. Long-term policies will pay out until you retire.
  • Will my entire salary be covered? A typical income protection policy will pay between 50% and 70% of your salary, depending on your choice. That's because it's designed to incentivise you to return to work.
  • Will multiple income protection policies pay out more? In short, no. If you have two income protection policies, each covering 70% of your earnings, you won’t receive 140% of your income. You will only receive 70% of your total income in any one month. Your insurer will ask you about other policies, and you will be committing fraud if you withhold this information, so there’s little point in wasting money paying for two policies.
  • Does income protection pay out from the moment I stop working? No, payments won’t start straight away. Depending on the policy you choose, payments will start from four weeks but could take as long as 26 weeks. You need to ensure you are confident you have enough savings to get you through until your first payment is due.
  • Will my monthly payout go up in line with inflation? If this is a concern, make sure you choose an income protection policy that increases the monthly payout in line with the retail price index (RPI) measure of inflation or by a fixed percentage each year. The monthly payment from a non-indexed policy will remain the same throughout the term of the policy.
  • Will my policy pay out at the same time as my employer’s sickness cover? This depends on whether you have a ‘stepped’ insurance policy. If your company continues to pay your salary for three months after you become sick, a 'stepped' policy will pay a lower amount until your company salary reduces or stops.
  • How many times will an income protection policy pay out? Critical illness insurance will only pay out once, after which the policy ends. In contrast, you can make multiple claims on an income protection policy.
  • Is there any way of getting the price down? As with most things in life, you get what you pay for. You can opt for a shorter term, delay payouts until 26 weeks or choose a policy with more exclusions – but in reality, all you are doing is increasing your risk should the worst happen. It depends on the level of exposure you are willing to accept.

Get in touch

To speak to one of our team, arrange an appointment or find out more, call 0800 915 0000, or alternatively use our contact form here.