Income Protection

Key Takeaways

• Income protection replaces 50-70% of your income if you are unable to work through sickness or an accident
• Income protection can be used for self-employed workers to provide a form of Sick pay
• Policies have a deferral period before benefits kick in, this means you can have your income start when your sick pay stops.
• Statutory sick pay is just £99.35 per week - Income protection is worth having if your bills exceed this value

What is Income Protection?

Income Protection cover protects you in the event of not being able to work. This could be due to illness, disability, or injury. It pays a regular income and continues until you are able to return to work.

The funds you receive from an accepted income protection claim can be used as you wish. Normally, funds are used for bills and the cost of living.

Income protection can be used to bridge the gap between what sick pay you are entitled to (either from the government or your employer) and the income you need to pay your bills.

The income protection cover should cover you for the amount you need to continue supporting yourself and your family.

Statutory Sick Pay and Income Protection

In the UK, if you are unable to work through illness, injury or disability, you are able to claim statutory sick pay from the state.

SSP currently pays £99.35 per week, for up to a maximum of 28 weeks. The unfortunate reality is, due to recent inflation and cost of living increases, £99.35 per week won't go very far in supporting a family.

Income protection typically pays 50-70% of your income whilst you are off. This specific amount depends on the benefit amounts you choose when buying the policy. It can be claimed upon as many times as you need whilst the policy lasts.

Income protection for the self-employed

If you are self-employed, it is likely that you do not have sick pay through a work benefit scheme. Self-employed workers are entitled to statutory sick pay, but for most self-employed workers that amount can still leave them struggling.

Income protection can allow a way to provide further financial support for self-employed, should they fall ill, or suffer disability or an injury that prevents them from doing their job.

If your income was to stop, how would you continue to pay your bills and maintain your lifestyle?

Income Protection Deferral Periods

When you choose your policy, you agree on a deferral period.

A deferral period is the amount of time you need to wait, whilst being unable to work before the payments begin.

Generally, a shorter deferral period is suitable for people without sick pay benefits at work, whilst a longer deferral period may suit someone whose sick pay benefit ceases after 13 weeks. In this case, the deferral period could also be set at 13 weeks. Once sick pay ceases, the income protection would kick in to make up for lost income during a period longer than what your employer would support you for.

Generally, the longer the waiting period, the cheaper premiums usually are.

Is Income Protection Worth It?

Deciding if any financial product is worth it is dependent on your personal circumstances.

If you will find it difficult to maintain your bills as well as what is important to you during a period of no income then income protection could be worthwhile for you.

When reviewing policies, think about the following points:

• What income would you be entitled to during a period of sickness?
• What costs must you maintain? For example, Mortgages, council tax, energy bills, and food costs.
• What happens if you cannot maintain these?
• What savings do you have that you would be willing to use?
• Are you happy to use these savings or did you have other plans for them?
• What might you and your family have to give up?
• How would your family feel about that?

Income Protection Advice

It is a good idea to seek advice about Protection insurance. An insurance adviser can help you to understand what income you would have if you were unable to work. They could help you think about what would happen to your finances and family during this period. Based on this information they would be able to make a recommendation of cover to help you maintain your lifestyle and bills during this time.