Why Income Protection Should Be Part of Your Safety Net

In today’s uncertain economic climate, protecting your income has never been more crucial. While many UK residents diligently insure their homes, cars, and even mobile phones, they often overlook one of their most valuable assets—their ability to earn an income. Let’s explore why income protection insurance deserves serious consideration in your financial planning.

What is Income Protection Insurance?

Income protection insurance is a long-term policy that provides regular income if you’re unable to work due to illness or injury. It typically pays out until you can return to work, retire, or until the policy term ends—whichever comes first.

What’s covered?

Long-term income protection insurance is designed to cover you for a lifetime. If you fall ill or sustain an injury that forces you to take time off work, you can use the insurance to cover lost earnings during this time. As long as your specific illness or injury is covered by your policy, you will be covered.

This type of insurance does NOT cover loss of income due to redundancy, demotion or getting fired.

The Reality of Income Vulnerability

Consider these sobering statistics:

• The average UK household saves less than 8% of their income
• One in four UK adults has less than £100 in savings, and one in six has no savings at all
• Every year, 300,000 people are unable to work due to serious illness or injury.

Without a steady income, most families would struggle to maintain their standard of living for more than a few months.

Is Income Protection Insurance Worth It?

Income protection insurance isn’t just another financial product—it’s a fundamental part of sound financial planning. In a world where our income supports not just our current lifestyle, but also our future goals, protecting that income should be a priority.

Discover the key benefits of income protection.

1. Comprehensive Coverage

Unlike statutory sick pay (SSP) which is limited in both amount and duration, income protection typically covers 50-70% of your gross salary until you can return to work.

2. Peace of Mind

Knowing you have a financial safety net allows you to focus on recovery, rather than worrying about bills if you become ill or injured.

3. Flexibility

Policies can be tailored to your specific needs, including:

• Choice of deferral periods
• Level of coverage
• Definition of inability to work
• Additional features like rehabilitation support

4. Protection for the Self-Employed

For freelancers and business owners who don’t have employer benefits, income protection is particularly valuable, as they have no access to sick pay.

5. The Cost of Waiting

Many people delay purchasing income protection until they experience health issues, at which point premiums become more expensive or coverage may be denied. The younger and healthier you are when taking out a policy, the more affordable it typically is.

6. Maintain Financial Independence

Even if you know family or friends would help you through a rough patch, income protection allows you to support yourself through an income dry spell.

While the monthly premium may seem like an additional expense, the potential cost of not having income protection far outweighs the investment. As the saying goes, “Hope for the best, but plan for the worst.” In the case of income protection, this planning could be the difference between financial security and financial distress during challenging times.

Common Misconceptions

Many people overlook income protection insurance as an unnecessary expense. This is often fuelled by misconceptions, the most common of which we’ve listed below.

“I Have Savings”

While savings are important, they can quickly deplete during a long-term illness. Income protection provides ongoing support that savings cannot match.

“I Have Critical Illness Cover”

Critical illness insurance only pays out for specific conditions and provides a one-off lump sum. Income protection offers broader coverage and regular payments.

“The Government Will Support Me”

Employment and Support Allowance (ESA) provides minimal support, starting at £77.00 per week—far less than most people need to maintain their lifestyle.

Making an Informed Decision:

When considering income protection insurance, evaluate:

1. Your current financial commitments
2. Family dependencies
3. Existing employee benefits
4. Emergency savings
5. Cost of monthly premiums vs potential benefit

Reasons you don’t need income protection insurance

There may be circumstances where you wouldn’t need income protection, including:

You’re already covered

If you’re already covered, you’d think you would know, right? Well, sometimes employers incorporate income protection insurance as an employee benefit. So, to avoid the unnecessary expense of getting the same protection twice, check your employee benefits.

You have plenty of savings and financial support

If you have plenty of savings and financial support to comfortably cover your costs and expenses without income, then you may not need income protection insurance.

Tips for Choosing the Right Policy

There are lots of insurance providers out there, and it can be difficult to know which policy is right for you. That’s why it’s recommended you talk to an insurance broker. They can research your options and have access to lots of providers to help get the right coverage for you, exploring and explaining the following considerations:

1. Compare Different Providers

Look at coverage levels, premiums, and claim success rates.

2. Check the Small Print

Understand exactly what is and isn’t covered.

3. Consider Your Occupation

Some policies offer better terms for certain professions.

4. Review Waiting Periods

Choose a deferred period that aligns with your sick pay and savings.

How to Get Income Protection Insurance?

Consider speaking with a financial advisor to explore how income protection insurance could fit into your financial strategy. Your future self may thank you for taking this important step toward financial security. To take the hard work out of finding income protection insurance, speak to Agentis today. We’ll make sure you get the right cover.