If work stopped for a while, this keeps the money coming in
Income protection pays you a monthly amount if illness or injury means you can’t work, so the mortgage and the everyday bills carry on being covered while you recover.
How income protection actually works
You choose a monthly benefit, usually up to around 60% of your gross salary. You choose how long you’d wait before it starts paying, which is called the deferred period and typically runs from four weeks to six months. And you choose how long it can keep paying for.
Then, if you’re signed off work, it pays you each month until you’re back, or until the policy ends.
An example.
Say you break a leg badly and can’t do your job for five months. Your employer pays full sick pay for four weeks, then statutory sick pay, then nothing. With a four-week deferred period, the policy can start paying in week five and keep going until you’re back at work, so your savings stay where they are.
Why families take it out
It keeps the household running
It tops up or replaces sick pay, so the mortgage, the nursery bill and the weekly shop carry on being paid while you get better.
It covers mental health
Stress, depression and anxiety are among the most common reasons for long-term sick leave in the UK, and income protection covers them. Critical illness cover generally doesn’t, which is worth knowing if you’re choosing between the two.
It matters more if you’re self-employed
No employer means no sick pay, so this tends to be the policy that does the most work for a self-employed parent.
It protects your credit file
Missed payments can follow you for six years, so keeping the direct debits alive through a long spell off work protects your ability to remortgage later on.
It takes the pressure off recovery
Going back too early is often what turns a few months into a few years, and having something coming in makes it easier to take the time properly.
What’s covered, and what isn’t
What’s covered?
You can receive a monthly payment if illness or injury stops you doing your own occupation, and that includes mental health conditions such as stress, depression and anxiety, which are among the most claimed-on categories. On most policies you can claim more than once while the cover is running, so a claim now doesn’t use up your cover for later.
What’s not covered?
This is illness and injury cover rather than unemployment cover, so redundancy, resignation and dismissal fall outside it. Any pre-existing condition an insurer has specifically excluded won’t be covered either, and your adviser will read those out to you before you apply so there are no surprises. There’s also always a wait at the start of a claim, which is the deferred period you chose. Choosing a longer one is the main lever for bringing the premium down.
Short-term or long-term?
Short-term
Pays for a capped period per claim, usually one to five years. It costs less.
Best for: Someone with decent employer sick pay and some savings behind them.
Long-term
Pays until you return to work, retire, or the policy ends, whichever comes first. It costs more.
Best for: Anyone who wants cover that still holds up if something serious happens.