Is Income Protection worth it?

Income protection could be useful to those who rely on their income to pay for their monthly expenses and wouldn’t have any other income insurance or funds to rely on if illness or injury left them able to work. It can be tempting to think “it won’t happen to me”, but it’s always a good idea to be prepared. That’s where income protection insurance comes in.

This type of cover, which pays you a percentage of your salary if you’re too ill to work, can be particularly valuable if you have limited savings, are not entitled to receive sick pay or are self-employed. Also, if you have a family or loved ones that depend on your income to keep everyday life ticking over, income protection may be worth it simply for the peace of mind it offers to you and to your nearest and dearest.

Of course, deciding whether or not to take out income protection and if it will be worth it for you is a personal decision. Understanding the benefits of income protection insurance and how a plan could potentially help you in the future is key to making that decision.

Why is income protection important?

Income protection is important because when you fall ill or become injured, money worries will only make the situation worse and could have a negative impact on your mental health. Your sole focus should be your recovery, so you can start feeling like yourself sooner and get life back on track. You can’t guarantee that injury or illness will never strike but, by insuring your income, you can help to make sure the bills will be taken care of if it does.

The benefits of income protection include:

• If your claim is approved, you’ll get a guaranteed percentage of your income and more money in your pocket compared to statutory sick pay.
• You can choose when your plan will start paying out, so you can time this in line with any sick pay you may receive. For example, if you are entitled to three months of sick pay, then you can choose a waiting period to suit this, meaning your payments can start once your sick pay ends. The longer your waiting period is, the cheaper your premium could be.
• The plan will usually pay out for as long as you need it to, for example until you return to work, retire or die. Plus, you can claim as many times as you may need, in line with the terms of your plan.
• In most cases, you’ll be covered for both physical and mental illness, although exclusions may apply for existing conditions.
• A financial safety net that offers you reassurance that you’re covered for a range of illnesses and injury, not just severe illness or disability, unlike other types of illness insurance. See also: Income Protection vs. Critical Illness

Why should you have income protection insurance?

Think about all of the things you have insurance for: your home, your car, holidays, even your pets. But what pays for those things? Your income. Insuring it means you can maintain a standard of living that is as close as possible to what you and your loved ones are used to, even if you become too ill or injured to work. Despite this, recent research carried out by investment management firm Charles Stanley showed that as few as 7% of adults in the UK have income protection insurance.

You may not think that you’ll ever find yourself in this situation, but according to the Office for National Statistics, the number of working-age adults out of work because of long-term sickness is on the rise, and in summer 2022 this figure hit 2.5 million people. If you became too ill to work, would you be able to survive without your salary?

The truth is that a lot of employers will not pay sick pay for more than six months. The money you’d receive from Statutory Sick Pay or state benefits may not cover all of your costs, in fact as little as 19% of the average UK salary is covered by sick pay (Guardian 2022). Even if you have savings to fall back on, it’s likely that you have other plans for spending them.

All of the above are the main reasons why income protection insurance can really be worth it for the large majority of working adults and why you should consider it as part of your own financial planning.

What does income protection cover and not cover

If you’re considering a plan, you may have questions about what income protection insurance does and doesn’t cover. For example, does income protection cover stress? The great news is that income protection covers an extensive list of short-term and long-term illnesses and injuries, provided that you are unable to work as a result.

Mental illness is usually covered, too, not just physical conditions, although exclusions may apply if you have a history of mental health issues. For more on exclusions, please see below. As cover is related to your health, these plans do not cover redundancy, loss of job, maternity or anything that is not an illness or injury.

Depending on the nature of your job, your medical history and any hobbies you have, there may be exclusions applied to your plan. For instance, if you have a history of heart problems, an insurer may not allow you to claim for any related issues. Any exclusions should be made clear to you before you go ahead with a plan. If you do have medical conditions, some providers do offer reviewable medical exclusions. Members who have our Income Protection Insurance, and completed the Full Health & Lifestyle Application when opening the plan, can ask us to remove medical exclusions, providing the plan has been up and running for at least 12 months and they have been symptom free for 12 months.

It always pays to be honest when you are going through the application process for income protection, because if you leave out any important information, particularly about your medical history, this could void your plan and leave you unable to claim.

Ready to take out an income protection plan?

If you’re ready to insure your income, you’re taking a great step towards safeguarding your financial future. Once you’ve figured out how much income protection you need, it’s time to get a quote. It’s up to you if you’d like to get quotes yourself directly from insurers or if you’d like the help of an Independent Financial Adviser. Either way, do your research and compare what’s on offer from different providers to find the right plan for you.

Don’t forget to explore the different additional benefits that some income protection providers offer with their plans, as these could make it even more worthwhile for you. For example, our Enhanced Benefits come as standard with our Income Protection Insurance. So, you can enjoy everything from discounted gym memberships to unlimited virtual GP access and money in Junior ISAs for any new children (terms and conditions apply).

We also have a 95.2% claims paid rate over the past five years, an award-winning claims team and the ability to refer you to a range of rehabilitation services if you need them. Sound good? You can find out more about our Income Protection Insurance and get a quote online.

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