What is income protection insurance (and when might you need it)?

Income protection insurance can help provide you and your family financial security during difficult times, which is why it is recommended that you take out a suitable income protection insurance policy to lift financial burdens off of your shoulders should you find yourself in a troubling situation.

However, not many people are aware of what this type of insurance is, or if they are, they tend to overlook it. In this blog, we will cover everything that you need to know about income protection insurance and the instances of when you might need it.

Income protection insurance in the UK

One survey has shown that only 9% of adults in the UK hold some form of an income protection policy, a significantly low figure compared to the number of UK adults carrying life insurance (41%). These statistics show that income protection is not at the forefront of the British general public’s minds, but it would be naive to dismiss income protection insurance policies as a whole.

In fact, it would probably be worthwhile to invest in both income protection and standard life insurance to maximise the financial protection of you and your family. During these economically turbulent times, financial wellbeing is key.

So, what is income protection insurance?

Income protection insurance refers to a type of life insurance policy that protects you financially should you find yourself unable to work due to redundancy, illness, or injury, and thus incapable of paying off bills etc.

It will pay you a percentage (typically up to a ½ to ⅔ – depending on your insurance provider) of your salary as you recover or find new employment. The duration of the cover is also dependent on the insurer that you choose, so it is important that you thoroughly review each insurance provider’s policies and what they can offer you.

Although some income protection insurance policies are broad in terms of what they cover and what you can make a claim for, there are also specific ones that are tailored to particular situations. For example:

• Personal accident
• Sickness and accident
• Mortgage protection
• Redundancy
• Self-employed

Don’t forget that the type of cover and the level of cover that you choose, especially how long the cover could last, can affect the pricing of your policy. Other factors that can influence the price include:

• Age
• Medical history
• Occupation
• Financial situation
• Lifestyle

Whilst the majority of insurance providers will offer you tax-free payments, not all do – so, make sure that you keep an eye out for this as well!

When might you need income protection insurance?

Sometimes, income protection insurance might not be the right type of insurance for everyone. However, it is recommended that those working in high-risk jobs that have a higher probability of injury or accident should definitely look into income protection insurance.

You might also find yourself unexpectedly redundant, which can happen to anyone at any time. Income protection insurance would be beneficial in this situation.

Your employer might also offer group income protection insurance as part of an employee benefits package, so it could be worthwhile investigating whether they provide income protection insurance that is employer-funded.