You work full-time.
You’ve got a mortgage, kids and monthly bills that don’t stop arriving.
Then illness strikes.
It’s not life-threatening. But it’s serious enough that you can’t work for six months.
How would you cope financially?
For many people, losing their income, even temporarily, would be catastrophic. Yet, while we insure our homes, cars and even our mobile phones, many of us leave our most valuable asset – our ability to earn – completely unprotected.
Income protection insurance pays you a regular monthly benefit if you can’t work due to illness or injury. It’s designed to replace part of your lost income, helping you maintain your lifestyle and meet your financial commitments while you recover.
Despite its importance, income protection is one of the most overlooked forms of insurance in the UK. Perhaps it’s because we don’t like thinking about illness, or we assume it won’t happen to us. But the statistics¹ suggest otherwise. And the financial consequences of being unprepared can be severe. This blog explores why income protection insurance deserves serious consideration as part of your financial security plan.
What is income protection insurance?
Income protection insurance provides a regular monthly payment if you’re unable to work due to illness or injury. Unlike a one-off lump sum from critical illness cover, it pays out month after month until you’re well enough to return to work, retire or the policy term ends.
Don’t confuse it with other types of cover. Life insurance pays only if you die. Critical illness cover pays only for specific serious conditions. And accident, sickness and unemployment (ASU) cover typically pays out for only 12 months.
Income protection is the only insurance that provides long-term replacement income for virtually any health condition that prevents you from working.
Policies typically pay between 50% and 70% of your gross salary. Why not 100%? Because insurers want to maintain your incentive to return to work when you’re able to.
Most policies have a waiting period (called a deferred period) before payments start. This could be anywhere from day one to 12 months, depending on your employer’s sick pay arrangements and your savings buffer. The longer you wait, the cheaper your premiums.
The benefits continue until you’re able to return to work, reach the policy’s end date (often your planned retirement age), or die – whichever comes first.
Why do you need income protection insurance?
How long would your savings last if your income stopped tomorrow?
Research suggests that 39% of UK adults have less than £1,000 saved³ and 30% of those born between 1965 and 1980 have no savings at all³.
Even if you’ve been more prudent, watching your carefully accumulated savings disappear month after month while you’re too unwell to work is emotionally devastating on top of the physical challenges you’re facing.
Mental health conditions⁴ now account for a significant proportion of income protection claims. Depression, anxiety and stress-related illnesses can strike anyone, often requiring extended time away from work. Cancer, musculoskeletal problems and heart conditions are other common reasons for claims.
The harsh reality is that Statutory Sick Pay² provides just £118.75 per week. That’s less than £500 a month. Could you afford to take that kind of hit, if you’re used to bringing home £3,000 to £4,000 a month or more?
So, the peace of mind alone that income protection insurance provides is invaluable. Knowing your mortgage will be paid and your loved ones’ lives can continue relatively normally allows you to focus on your recovery rather than your financial survival.
What does income protection insurance cover?
Modern income protection policies offer remarkable flexibility to match your circumstances and budget. Choosing the right options can mean the difference between comprehensive cover you can afford and a policy that doesn’t quite fit your needs.
Waiting periods range from day one to 12 months. So, if your employer provides six months’ full sick pay, you might choose a six-month deferred period.
Self-employed? You might want cover from day one or after just four weeks. The shorter the waiting period, the higher your premiums.
Benefit periods vary, too. Some policies pay out for one or two years, others until retirement. Short-term policies cost less but leave you vulnerable if you develop a long-term condition. We’d normally recommend getting cover until your planned retirement age, if you can afford it.
Policies offering indexed benefits that increase with inflation can help protect your spending power over time. Some policies even provide rehabilitation support to help you return to work successfully, while some also pay partial benefits if you return part-time initially.
Who benefits most from income protection insurance?
While anyone who depends on their income could benefit from income protection insurance, it can be particularly valuable for certain groups.
If you’re self-employed or a contractor, you probably won’t have the safety net of employer sick pay. Without income protection, illness means immediately losing your income while your bills continue.
If you’re employed but have limited employer sick pay, perhaps the statutory minimum or just a few weeks’ full pay, you could face a rapid drop in income if you fall ill. Even seemingly generous employer schemes often reduce to half-pay – or less – after a few months.
If you’re the main earner in your household, you probably carry the burden of the mortgage and family expenses, so you need to consider the wider impact of losing your income. Likewise if you’re a single parent with no other income to fall back on.
And if you have significant financial commitments, such as a large mortgage, school fees or supporting elderly parents, you’ll have less room for financial disruption. The higher your fixed costs, the more devastating losing your income could be.
However, income protection cover might be less crucial if you have substantial savings, a working partner with high earnings, or you’re close to retirement with reduced financial commitments.
Cost versus value
Income protection premiums vary based on your circumstances. A 30-year-old office worker might pay £30 monthly for basic cover, while a 50-year-old manual worker could pay up to three times as much for similar benefits.
Your age can significantly impact the cost. Starting at 25 versus 45 can halve your premiums.
Your occupation matters, too. Those with desk-based jobs typically pay less than those with more physical roles, like builders or nurses.
Smokers pay more than non-smokers, for obvious reasons. And your health history can also affect your premiums, though many conditions can be covered with adjusted terms.
Compare the cost of income protection insurance to your potential losses. For example, if you earn £40,000 annually, being unable to work for two years would mean losing £80,000 of income. Statutory Sick Pay would provide around £12,500 over that period. So, income protection cover costing £50 monthly (£1,200 over two years) to protect £67,500 of income would suddenly look like excellent value.
You could also reduce your premiums further by choosing a longer waiting period (if you have savings or employer sick pay), or a shorter benefit period. Even two years’ cover would provide valuable financial breathing space.
How can Heathcote Financial Planning help?
Finding the right income protection policy requires balancing your cover needs with affordability.
As chartered financial planners, we search the whole market to find policies that match your specific circumstances and budget.
We’ll help you navigate the underwriting process to ensure you get the best terms available. We’ll also help you calculate the right level of cover based on your actual financial commitments. And we’ll structure the policy efficiently, maximising any available tax relief and avoiding over-insurance.
Income protection insurance shouldn’t exist in isolation. We’ll consider how it fits with your employer benefits, existing savings and other financial plans. And as your circumstances change – promotion, moving home or starting a family – we’ll review your policy to ensure it covers everything you need it to.
Don’t wait until health problems make getting insurance too expensive or unavailable. The best time to arrange it is when you’re young and healthy. So, book an appointment with us to discuss how income protection insurance could safeguard your financial future. Your ability to earn is too valuable to leave unprotected.
Sources
¹ Shepherds Friendly – Income Protection Gap UK (October 2024)
² www.gov.uk – Statutory Sick Pay
³ Money Farm Magazine – Average savings by age in the UK (June 2025)
⁴ Institute and Faculty of Actuaries – Mental Health and Disability Insurance Industry Review (March 2025)
Disclaimer
This article is for information purposes only and does not constitute personal financial advice. The information provided is based on current legislation and tax rules which may be subject to change. Income protection policies vary and are subject to underwriting and terms and conditions of the provider. You should seek personalised advice before making any financial decisions to ensure the product is suitable for your individual circumstances.
A Protection plan will have no cash in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse, and you may not be covered if a claim is made.
Past performance and claim statistics are not a guarantee of future outcomes. Eligibility for cover and premium rates will depend on your personal and medical circumstances.
Heathcote Financial Planning does not accept liability for any actions taken or not taken based on the content of this blog.
Company Registration
Heathcote Financial Planning is a trading style of The Mortgage and Protection Partnership Ltd, authorised and regulated by the Financial Conduct Authority (FCA No. 612049).
Registered address: Olympus House, Olympus Park, Quedgeley, GL2 4NF.
Company Registration Number: 08734287.