Why it matters
How long could you manage?
Statutory sick pay is a small fraction of most people's income and it runs for a limited period. Employer sick pay, where it exists, often steps down to half pay and then stops. After that most households are relying on savings.
Income protection is the product that keeps the mortgage paid, the bills covered and the family fed while you recover. If you are self-employed there is no employer sick pay at all, which makes it more important rather than less.
The key choice
Own occupation or any occupation
This is the most important decision in the whole policy and it is worth understanding before you buy.
Own occupation pays out if you cannot do your own job. Any occupation only pays if you cannot do any job at all, which is a much higher bar and much harder to claim on. There are also middle definitions such as suited occupation.
Own occupation costs more. It is almost always worth it.
Setting it up
The levers that change the cost
Income protection is more flexible than people expect, and the cost can be tuned considerably.
- The deferred period, meaning how long before payments start, often 4, 13, 26 or 52 weeks. Match it to your employer sick pay and savings.
- The percentage of income covered, typically 50% to 65% of gross earnings
- Whether the policy pays until you recover, or only for a fixed period such as two or five years, which is cheaper
- Whether the benefit rises with inflation
- Whether premiums are guaranteed or reviewable
Income protection policies have a deferred period before payments begin. Cover is subject to underwriting and policy terms.