Income protection insurance can provide a potentially vital financial safety net for families, yet it remains widely misunderstood or overlooked by many.

With rising living costs and economic uncertainty, safeguarding your income against unforeseen circumstances is more important than ever.

Let’s look at what income protection insurance is, why you might need it, when you might not, plus the key considerations when shopping for a policy.

Income protection explained

Income protection insurance is a policy designed to provide a regular income if you’re unable to work due to illness, injury, or disability.

Unlike other forms of ‘protection’ insurance, such as life insurance or critical illness cover, income protection focuses on replacing a portion of your earnings over an extended period, helping you maintain your lifestyle and meet financial commitments.

The way it works is straightforward. You pay a monthly premium to an insurer, and in return, the policy pays out a tax-free monthly sum – typically 50-70% of your pre-tax income – if you’re unable to work for a specified period.

Policies often have a waiting (or deferral) period, which can range from a few weeks to several months, during which you must be unable to work before payments begin. This waiting period can be tailored to your circumstances, with shorter periods generally leading to higher premiums.

Payments continue until you’re able to return to work, the policy term ends, or you reach retirement age, depending on the policy’s terms.

Some policies also offer additional benefits, such as rehabilitation support to help you return to work or cover for specific conditions like back injuries or mental health issues.

Income protection is particularly valuable for those whose financial stability depends on their ability to earn, offering peace of mind that bills, mortgages and daily expenses can still be covered during difficult times.

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Why you might need income protection

The primary reason to consider income protection is the risk of serious illness or injury that prevents you from earning an income.

In the UK, millions of people face long-term health challenges that disrupt their ability to work. Over 2.8 million people were economically inactive due to long-term sickness in 2024, according to the Office for National Statistics (ONS), a figure that highlights the vulnerability of relying solely on personal savings or statutory benefits.

Serious illnesses, such as cancer, heart disease, or mental health conditions, can strike unexpectedly, often requiring extended recovery periods.

Similarly, accidents – whether a car crash or a workplace injury – can lead to temporary or permanent disability, cutting off your income stream.

Statutory Sick Pay (SSP) in the UK provides only £118.75 per week (as of 2025) for up to 28 weeks, which is unlikely to cover most people’s living expenses, especially if you have a mortgage, rent, or dependents.

 Savings can quickly dwindle and benefits such as Universal Credit may not bridge the gap adequately. Income protection can provide a more substantial, reliable income, allowing you to focus on recovery without the added stress of financial hardship.

Self-employed individuals are particularly at risk, as they lack access to employer-provided sick pay. Freelancers, contractors, and small business owners often face immediate financial strain if they’re unable to work.

Even salaried employees may find their employer’s sick pay scheme, typically a few months at full or half pay, insufficient for prolonged absences.

Beyond health-related risks, income protection can also be a lifeline for those with significant financial commitments, such as young families or individuals with large mortgages. Losing your income could jeopardise family stability, making income protection an essential consideration for parents.

Reasons why you wouldn’t need it

While income protection is valuable for many, it’s not necessary for everyone. Certain circumstances may reduce or eliminate the need for a personal policy.

If you’re employed and benefit from a robust workplace protection scheme, you may already have adequate cover. Some employers offer generous sick pay packages, covering full or partial salary for extended periods, or provide group income protection schemes as part of their benefits package.

These policies, often cheaper due to collective bargaining, may make a personal policy redundant. However, it’s crucial to review the terms. Some schemes only cover specific conditions or have shorter payout periods.

Individuals with substantial savings or alternative income sources may also forgo income protection. For example, if you have enough in savings to cover living expenses for several years, or if you have passive income from investments, rental properties, or a pension, you may not need the additional security of a policy.

Similarly, those with a partner or family member who can fully support household finances during a period of illness might feel less urgency to purchase cover.

People nearing retirement or with no dependents may also find income protection less relevant. If you’re close to receiving a pension or have paid off major debts like a mortgage, the financial impact of losing your income may be minimal. Additionally, some policies don’t cover individuals over a certain age, typically 65, which aligns with retirement for many.

Finally, if you work in a low-risk profession and have excellent health, you might perceive the risk of needing income protection as low. However, this assumption itself carries risks, as unexpected illnesses or accidents can affect anyone, regardless of lifestyle or occupation.

Things to look out for when buying a policy

Choosing the right income protection policy requires careful consideration to ensure it meets your needs and offers value for money.

Here are key factors to keep in mind:

Shop around: Premiums and policy terms vary widely between insurers. Use comparison websites or work with a broker to explore options from multiple providers. Look at the percentage of income covered, the deferral period, and any additional benefits, such as rehabilitation support or premium waivers during unemployment.

Consider speaking to an adviser: An independent financial adviser can help you navigate the complexities of income protection options, ensuring the policy aligns with your financial situation and goals.

Understand exclusions and eligibility: Insurers may exclude pre-existing medical conditions, mental health issues, or high-risk occupations (e.g., construction or professional sports). Disclose your full medical history and job details to avoid having claims denied later. Some conditions, like chronic illnesses, may preclude you from getting cover or increase premiums.

Check policy flexibility: Ensure the policy allows adjustments, such as changing the deferral period or coverage amount, as your circumstances evolve. Also, check whether premiums are guaranteed (fixed) or reviewable (subject to change), as this can affect the long-term affordability of the policy.

Cost vs. coverage: While cheaper policies may seem appealing, they often come with shorter payout periods or stricter terms. Balance affordability with comprehensive cover and explore policies with back-to-work support to reduce long-term costs.

In conclusion, income protection insurance is a crucial consideration for many in the UK, particularly those with dependents, significant debts, or no alternative financial safety net.

By understanding how it works, assessing your need, and carefully selecting a policy, you can protect your financial future against the unpredictability of illness or injury.

Always consult with professionals if you’re in any doubt and compare options to find a policy that offers both security and peace of mind.

Photo credits: Pexels

The post Should I get income protection? appeared first on Mouthy Money.

Mouthy Money Your Questions Answered panelist Alan Richardson answers a reader’s question about their options when it comes to protection policies if one person gives up their job for childcare.

Question: I’ve just had my first baby at 34 and have decided not to go back to work. What insurance is available to help our family finances? My partner works full time, and I will be caring for our child until they are three when I plan to go back to work.

Answer: Deciding to put your career on hold so that you can be a stay-at-home parent is not an easy decision.

There are many aspects to consider and it’s great that you are scrutinising the financial ramifications of not only a reduced household income, but also depending on one bread winner.

One often overlooked aspect of giving up work is the loss of any work-based benefits you may have had. This could include life cover, sick pay, maternity cover, medical diagnosis and treatment, and other benefits such as annual leave.

Fortunately, in the UK we have one of the world’s leading insurance markets, offering a huge range of products, yet this can be daunting and at times confusing, so speaking with an independent adviser could be helpful.

Life cover is often a good starting point. This can pay out as a lump sum or as a regular income in the event of death (or terminal illness). Some people take both types of life cover, one to cover the mortgage and the other to providing a regular household income to pay for things such as household bills and childcare fees.

Whether you are married of not, ask your adviser or insurer to place your policy into trust. This will give you an element of control over who will ultimately benefit from any pay out, as well as outlining who would look after the money until a beneficiary was old enough to receive it.  

With life cover, you have helped instil an element of financial resilience for your family should you die. However, we are all more likely to become seriously ill before we die. Critical illness polices cover cancers, heart attacks, strokes, and dozens of other serious illnesses.

Although a cash injection isn’t going to necessarily fix the condition, having access to funds to cover the additional costs and reduce financial stress is useful. Many Insurers will also cover your children automatically. 

There is also income protection, which pays a tax-free replacement income if you cannot work, including those who do not work although the amount of cover is limited.

It is important to insure the main household income so you’re covered yet the cost of these policies vary greatly and the options can be amended to suit your budget.

Finally, Private Medical Insurance (PMI) is one of the fasted growing areas of insurance.

More than other policies, this insurance provides you with practical assistance to beat an illness, giving you access to comprehensive list of hospitals, consultants, and surgeons to attend privately. This allows you to get quicker diagnosis, early treatment, specialised medical care and medication to speed up your recovery.

While many couples set up protection policies up on a joint basis, advisers will often recommend arranging separate policies for a number of reasons.

This will depend on your budget but having two policies means you both have cover – as even though you’re not working the financial value of everything you’re doing including childcare costs will be substantial.

Furthermore, some policies encourage you to stay fit and healthy and may also include added benefits such as 24/7 virtual GP apps, lifestyle planning and second opinion diagnosis services, at no extra cost.

Alan Richardson is Head of Advice at LifeSearch.

Bio: Alan Richardson has worked across the insurance sector for over 25 years and is Head of Advice at protection specialists, LifeSearch. He and his family moved to the Cambridgeshire in 2020 and is loving the health benefits of the fresh country air as he walks to the local pubs.

Photo by Picsea on Unsplash

The post Do I need insurance if I become a stay-at-home parent? appeared first on Mouthy Money.