Income Protection Insurance: Are you covered?

Have you ever thought about what would happen if illness or injury left you unable to work? How would you manage your everyday expenses? What luxuries might you have to give up? Chartered financial planner, Jo Fisher has all the answers, below.

Many people assume their employer would continue paying them if they became seriously ill or were unable to work for an extended period. In reality, Statutory Sick Pay is currently just £123.25/week (2026/27), and many workplace sick pay schemes only provide support for a limited time.

For most households, losing an income for several months could quickly place significant pressure on savings, mortgage payments, household bills and day-to-day living costs.

Surprisingly, only 14% of UK adults hold an income protection policy (according to the Association of British Insurers 2024) despite 148.9 million working days being lost to sickness or injury across the UK in 2024 alone, although the proportion of new individual income protection insurance claims paid out is a staggering 97.9%.

Income protection is often overlooked, but for many people it could provide vital financial support at exactly the point it is needed most.

Still not sure?

Here are five reasons why having an income protection policy in place is worth considering:

Provides financial security

If you can’t work due to injury, illness, or a disability, income protection insurance helps to replace a portion of your lost income. This ensures you can still cover essential living expenses, like rent or mortgage, utilities and groceries, without having to rely entirely on savings or emergency funds.

Helps maintain your lifestyle

Without an income, you may have to cut back significantly on spending, which could have a major impact on your lifestyle and long-term financial plans. Income protection insurance helps you maintain financial stability while you recover, reducing the need for major financial adjustments during an already difficult period.

Prevents financial stress

Dealing with health issues is hard enough without the added worry of how you’ll pay bills or support your family. Income protection insurance can help reduce financial anxiety and provide reassurance during periods of illness or injury.

Covers a wide range of scenarios

Many policies cover both short-term and long-term conditions, from a broken bone to more serious chronic illnesses or mental health conditions. This broad coverage helps ensure financial support is available across a wide range of circumstances.

Peace of mind

Knowing that you have income protection in place can provide valuable peace of mind. It allows you to focus on recovery, knowing your financial situation is protected and that you don’t necessarily have to compromise your long-term financial future because of ill health.

Income protection insurance policies can vary widely, so it’s important to understand the options available to ensure you choose one that is right for you.

Policies and key features to consider:

Policies can vary significantly depending on the level and length of cover selected.

Short-term policies typically provide cover for one to two years and can offer a more affordable option for those looking for protection during temporary illness or recovery periods.

Long-term policies provide cover for extended periods, potentially until you return to work or retire, offering greater financial security in the event of serious illness or long-term disability, although premiums are generally higher.

Many policies also include full or partial disability cover. This means you may receive full benefits if you are unable to work entirely, or partial support if you can return to work in a reduced capacity, such as part-time hours or an alternative role.

As policy definitions and eligibility criteria can vary between providers, it’s important to review terms carefully before taking out cover.

Key considerations when choosing income protection insurance

When selecting a policy, it is important to consider factors such as how long you would need to wait before payments begin, how long benefits would be paid for, and the level of cover required.

Policies can include waiting periods ranging from 14 days to six months, with longer waiting periods often reducing premiums. Benefit periods can range from a few months to several years, or even until retirement.

Premium costs are typically influenced by factors such as your age, occupation, health and level of cover. Some policies use stepped premiums, which increase over time, while others offer level premiums that remain fixed throughout the policy term.

It is also important to understand any exclusions within the policy, such as pre-existing medical conditions or injuries linked to specific activities, as well as the potential tax treatment of any payouts.

As policies and definitions can vary significantly between providers, taking professional advice can help ensure the cover remains suitable for your circumstances.

Already have income protection in place?

Many people arrange income protection cover and rarely review it afterwards. However, over time, changes to your income, career, financial commitments or family circumstances could mean your existing policy no longer provides the level of protection you need.

Regularly reviewing your cover can help ensure your policy remains appropriate, from the level of protection provided to the waiting period and overall cost.

Income protection remains one of the most overlooked areas of financial planning, despite protecting the income that many households depend on most.

Whether you are considering cover for the first time or reviewing an existing policy, speaking to a financial adviser can help ensure you and your family would be financially protected if the unexpected happened.