8 min Read
11 Oct 2016

Income Protection – do you really need it?

Income Protection - do you really need it?

Income Protection - do you really need it?

What is income protection insurance?

  • Income protection insurance is an insurance policy that pays out an income if you are unable to work due to illness or an accident
  • Often referred to as sickness insurance or disability insurance
  • Payments usually continue until retirement, death or you return to work
  • Short term income protection insurance is also available where payments are only paid for a limited period resulting in reduced monthly premiums
  • Income is paid after an agreed deferred period has passed, typically one to twelve months and the longer the deferred period the lower the monthly premiums
  • Payments are for a percentage of salary so that there still remains an incentive for policy holders to return to work. This is typically around 70% of your salary
  • Income protection insurance payouts are tax-free

Do you need income protection insurance?

  • We often think of illness as a couple of days off work with the flu and don't consider what would happen if we were off work for a longer period due to a serious illness or an accident
  • Many employees will continue paying employees salaries whilst they are unable to work but this could be limited to just a few weeks and therefore no income will be paid beyond that point
  • State benefits are low for people unable to work due to illness or accident so it is surprising that only around 9% of the public have any form of income protection
  • Premiums can be tailored to your budget as some cover is better than none
  • Income protection insurance does not cover redundancy under a basic income protection insurance policy but some insurance companies will provide redundancy cover (also known as redundancy insurance) as an option
  • Income protection is available for self employed individuals but restrictions on payment levels and deferred periods may apply

Do you need life insurance and income protection?

  • Life insurance is an essential part of you and your family's finances but protecting your income in the event of illness or accident and is a key pillar to your future well-being
  • Many employees have some form of life cover and income protection insurance through their employer but this would disappear if they left their company or were made redundant
  • Premiums for both life insurance and income protection do not have to be expensive and can be tailored to your budget
  • Mortgage protection insurance is the cheapest form of insurance cover and will pay off your mortgage in the event of early death

How much income protection insurance do I need?

  • The maximum amount of income available under an income protection insurance will depend on the chosen insurer, typically between 50% & 75% of your current monthly income
  • You can have more than one income protection insurance policy but the level of cover will be capped by the insurance companies and reinsurers will ensure you don't go over the above limits
  • State benefits for illness are only around £100 per week and the full amount is not payable until after 14 weeks of time off work
  • The amount of income protection insurance you will need will depend on the amount of fixed outgoings (mortgage, bills, food etc.) you have on a monthly basis less the amount of benefits or other income that will be paid when you are off work
  • Once you have arrived at the level of cover you require then adjusting the deferred period can help manage the monthly premium to fit your budget, the longer the deferred period the lower the monthly premium

How much is income protection insurance?

There are a number of factors that will affect the cost of income protection insurance. The amount of income protection cover, the deferred period, your age & medical history are the main factors that affect the cost of premiums for income protection insurance.

How much does income protection insurance cost?

The table shows how much income protection costs

Age  Monthly income  Deferment period Age benefit payable to Monthly premium
30  £1,500 4 weeks 65 £30
40  £1,500 4 weeks 65 £35
50  £1,500 4 weeks 65 £50

To get a more accurate income protection insurance quote then this is the best Income protection quote calculator to use.

Find the cheapest income protection insurance

The best income protection quote tool we’ve found covering the whole of the market

Get an income protection insurance quote

Who has the best income protection insurance?

  • There are a number of insurance companies that provide income protection insurance and there is no one provider that provides the best income protection insurance
  • Income protection insurance providers view individual circumstances slightly differently and, therefore, will price their income protection insurance accordingly
  • Comparing income protection insurances is essential to get the best premium and cover to suit your needs.

Compare income protection insurance

  • We have sourced the best income protection comparison tool in the market to allow you to quickly compare income protection insurance from the UK’s leading insurance companies. To get a quote that suits your needs follow the steps below:
  1. Click on the Income protection comparison tool
  2. Choose the type of cover you would like from:
    • Accident & Sickness
    • Accident, Sickness & Unemployment
    • Unemployment insurance only
  3. Enter how much income would you need a month to survive if you were unable to work
  4. Choose your deferment period from 1 week up to 52 weeks
  5. Select whether you are a smoker or a non-smoker
  6. Choose your occupation
  7. Enter your annual income and date of birth
  8. Click ‘See my results’ to see the cheapest income protection insurance for you

The cheapest income protection quote may not end up the cheapest once your case undergoes medical underwriting. That’s where the insurance company assesses the level of risk you pose to them and sets your premium accordingly. That is why if you have the chance to enter your phone number in the calculator then I recommend you do so. I’ve personally vetted the service provided by the company behind the calculator and they will advise you of the best company for your medical history to ensure your premiums are kept to a minimum.

Article overview

Key points

What is income protection insurance?

  • Income protection insurance is an insurance policy that pays out an income if you are unable to work due to illness or an accident

Do I need income protection insurance?

  • Consider what would happen if you were off work for a long period due to a serious illness or an accident. How would you cope financially? Income protection will ensure you and your family don’t get into financial difficulty.

How much income protection insurance do you need?

  • The maximum amount of income available under an income protection insurance will depend on the chosen insurer, typically between 50% & 75% of current monthly income

How much does income protection insurance cost?

Written by Liam

Over 30 years experience in financial services, residential lettings and property sales. Director of a leading national estate agency chain, until leaving in 2008 to pursue other commercial interests. Vast experience in new business development, business change, management development and business strategy.

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