How much income protection insurance do I need?

How much income protection you need is based on a number of variables, but the main factors are your usual take home pay and how much you spend on essential costs and bills, particularly those that you’d still have to cover if you were unable to work due to illness or injury.

If you’re considering insuring your earnings, you may be wondering “how much income protection do I need?”. It’s a good question to ask and one you should have an answer to before you take out a plan.

When you do, be realistic with your expectations and ensure you’re fully up to speed with the benefits of income protection insurance. Any money you receive following a claim won’t completely replace your full pay or offer you any additional money on top of this, as these plans only offer a percentage of your salary. For example, with a Shepherds Friendly Income Protection Insurance plan, you can insure up to 70% of your pre-tax income. This sum should help you pay for unavoidable expenses while you get back on your feet.

This guide will help to give you an idea of what to consider when figuring out how much income protection cover you need. However, if you’re still unsure or would like a little extra help deciding on the right level of cover or the best plan for you, you may find it useful to have a chat with an Independent Financial Adviser.

Get to grips with your essential spending

The amount of income protection insurance that you need should cover your essential expenses. Depending on your circumstances, these could include your mortgage or rent payments, council tax, utility bills, supermarket costs and any credit commitments you have.

Everyone’s outgoings are different, so you may wish to go through your spending and make a list of the non-negotiable and unavoidable costs that you’d still be responsible for if you were unable to work, then calculate the total amount or your share. This will give you a good starting point when it comes to how much you would need an income protection plan to pay out if illness or injury meant you couldn’t work. Here are some additional pointers to consider:

• Some people may prefer not to include non-essential spending in the estimate, such as social spending, beauty treatments and haircuts, and clothing, for example, as this will increase your overall cost of your premiums.
• Some expenses usually relating to work such as commuting and lunches will either reduce or stop if you need to claim.
• On the other hand, some household costs may increase if you’re spending more time at home while you recover. For example, heating and electricity bills.
• Increases in the cost of living and inflation may cause your essential costs to increase overall in the future. Because of this, you may wish to look for a plan that has the option for any benefit amount you’d receive at claim to increase annually in line with inflation or the Retail Price Index (RPI).
• Some medical conditions or injuries might come with additional unexpected costs, such as specialist care, medication or equipment.

Review your budget

You may be wondering “is income protection worth it?”, especially when you have other increasing costs to consider on a monthly basis. However, those costs won’t go away if you find yourself off work due to sickness or an injury. Plus, money stress is the last thing anyone needs while they try to recuperate. So, the monthly premium you’ll pay for an income protection insurance plan could give you a valuable safety net when you need it.

Accommodating the cost of the monthly premiums associated with a plan may take a little reshuffle of your finances and a review of your budget to see how much cover you can realistically afford. Are there costs you could reduce or non-essential expenses you could avoid in order to make room in your budget for income protection insurance?

How much should you pay for income protection?

How much you’ll pay for income protection insurance depends on how much cover you need and how long you’ll need it for. Do also bear in mind that there are other factors that could influence the cost of your premiums including your health, the nature of your job and if you have any hobbies that could be viewed as high-risk. This varies from provider to provider, for example if you take out our Income Protection Insurance, your occupation, hobbies and health won’t have an effect on the premiums you pay.

In any case, to avoid any issues at the point of claim, it’s essential to be 100% honest and accurate about your circumstances when you apply for your plan, as any inaccuracies could invalidate your claim or even your plan.

Additionally, many providers have a range of options available to make income protection insurance accessible to a range of different budgets. For example, if you take out a plan with us, you can vary your level of cover and your deferred period (how long you’d need to wait to claim), as well as choose between long and short-term cover. All of which can help tailor your plan to your needs and budget.

Final thoughts

In summary, how much income protection cover you need depends on how much you pay towards essential monthly outgoings. Calculating your necessary spending and reviewing your budget can help you strike the balance between getting the right amount of cover and agreeing to a monthly premium that suits you.

The more cover you need, the more your monthly premiums may cost you. That being said, you may not want to apply for significantly less cover than you may require to save money on your premiums, as you could end up out of pocket without enough cash to pay your bills if you ever need to claim. Similarly, you’re unlikely to get much value for money in applying for more cover than you need and remember that you can only apply for cover for a maximum of 70% of your pre-tax income.

Before you take out a plan, make sure you fully understand the terms and conditions, including what isn’t covered by income protection, and that you know exactly what you’ll be getting if you need to claim. If you need any advice, you may wish to speak to an Independent Financial Adviser.

Ready to insure your income?

If you know how much income protection cover you need and you’re ready to apply for a plan with us, it’s simple to find out more about our Income Protection Insurance and get a quote online.

We always put our members first and, as a result, we’ve paid 95.2% of new income protection claims over the past five years. If you ever need to claim, you’ll have a dedicated claims handler throughout the process and, if required, we can refer you to specialist rehabilitation and support services to help you get back to yourself again. Plus, all members with an Income Protection Insurance plan with us gets free access to Nuffield Health Benefits, including free 24/7 access to a virtual GP.

Be sure to read through our important information and key features. Remember that when you invest, your capital is at risk.