In addition, Employment Support Allowance offers limited support starting as low as £73.10 per week if you’re over 25. While other state benefits are available, these depend on your circumstances and the nature of your disability and aren’t guaranteed.
When you consider that average weekly spending for UK households is more than £500, it’s unlikely that ESA alone would come even close to being able to support your lifestyle while you are not working. Even where other benefits are available, these may not top up your income back to the average household spending figure.
Try Our Income Risk Calculator…
You can try our Income Riskometer to see how at risk your income is should something happen to you.
Simply answer 5 questions about your circumstances and it will calculate how safe your lifestyle is should you be unable to earn an income due to illness, injury or forced unemployment.
When Should I Consider Buying Income Protection?
When You’re Young and Healthy
Unfortunately, some people wait to apply for protection insurance until they are at the point of realising that their health is at risk. However, by this point it’s almost too late to get cover as you’ll be potentially faced with higher premiums or exclusions on conditions you’ve already developed.
Instead, the best time to buy a policy is when you are young and healthy. The healthier you are when applying for a policy, the better deal you are likely to get. If you choose to guarantee your premiums, you can also keep the cost of your policy down across its lifespan.
When You Experience Life Changes
There are certain lifestyle events where we tend to take on more responsibility and realise just how important it is to protect our salary should we suffer an illness or injury which renders us unable to earn a wage.
- Buying a home
Our home is usually our most valuable asset and many of us commit the majority of our working lives to paying off a mortgage. To ensure that you can keep up with your payments even if you can’t work, it’s worth considering an insurance policy to protect your salary. Without a regular income, there’s a risk that you may one day not be able to afford to make payments and could potentially lose your home.
- Changing jobs or getting promoted
If you already have Income Protection when you are promoted, you will often be able to increase your policy’s cover to match your new salary without needing to provide any medical evidence. If you don’t have a policy yet, however, getting a new job is a great time to take out a policy, especially if your employer does not provide you with any insurance protection through a company funded scheme or offers only limited sick pay.
- Becoming self employed
Income Protection is especially important for the self-employed. Without any sick pay to fall back on, the self-employed are particularly vulnerable if they can’t earn an income. As such, it’s sensible to consider protecting yourself financially with comprehensive sickness insurance so you do not need to worry where your money is coming from if you are ill to work.
- Birth of a child
Having an extra dependant join the family who will rely on your salary is another reason to make sure your income is adequately protected.
Income Protection for Self Employed & Company Directors
While standard Income Protection policies will be suitable for most people, the self employed, business owners and workers in certain occupations may require specialised cover.
Salary, dividends and setting an appropriate level of cover
For the self employed and company directors who run their own business there is no safety net of an employer which makes income protection even more important. With directors often paying themselves a small salary and the rest in dividends it is important to speak to an expert adviser to make sure you can take out cover where your dividends can be protected.
For the self employed making sure the amount of cover aligns with what gets declared to the HMRC ensures that you do not over insure yourself and pay for cover which you are unable to claim on.
Doctors and NHS Sick Pay
For example, people who work for the NHS use a tiered sick pay system, where the length of time they have been employed determines how much sick pay they are entitled to. In addition, half of their sick pay entitlement consists of half payments, which may not be able to be sufficient to cover their necessary expenses.
To accommodate this, some insurers have put together specialised Income Protection for doctors. These policies allow doctors and surgeons to set their deferred period to match their full sick pay, yet the policy will pay out limited benefits when they begin receiving half sick pay to top up their income.
Do I Need Income Protection or Critical Illness Insurance?
It can be confusing as to whether Income Protection or Critical Illness is the best option. The policies sound similar but actually work quite differently.
Income Protection, as mentioned, involves you paying regular premiums in exchange for a policy that will provide a regular monthly income if you’re medically unfit to do your job for any reason. The best Sickness Insurance will pay out right up until your retirement if you can never work again.
These regular payments help you manage all your essential monthly outgoings, from your mortgage / rent to your grocery shopping and utility bills.
Instead of a regular income Critical Illness Insurance will provide a single lump sum if you can’t work because of one of the insurer-specified ‘critical’ illness conditions listed in the policy.
The big three claims on Critical Illness Insurance are:
- Heart attacks
Different Critical Illness policies can cover anywhere from 10 to 150 serious illnesses. In addition to the big 3 detailed above you can expect multiple sclerosis, motor neurone disease, permanent loss of vision / hearing and other catastrophic illnesses / injuries to be covered.
The difference is that the condition has to be critical as defined by the insurer for Critical Illness Insurance, whereas with Income Protection the condition can be anything that stops you from working. This might include a bad back or stress, which is by no means critical but can be nonetheless debilitating.
Moreover, it can be hard to gauge how long you’ll be out of work with a particular illness, making it hard to know how long a lump sum from a Critical Illness Insurance policy would last. Income Protection, by paying you a regular income similar to a salary, eliminates this concern.
For more information on the key differences see our Income Protection vs Critical Illness Insurance Guide.
Do I Need Income Protection or Payment Protection Insurance?
Payment Protection Insurance (PPI) and Income Protection are two totally separate protection products designed to do different things.
PPI is there to allow you to keep up with loan repayments if you can’t work due to accident, sickness or potentially unemployment. Mortgage Payment Protection Insurance, meanwhile, does the same for a mortgage.
Given the policy is usually tied to a loan repayment, you’re usually only able to insure that loan repayment. While the mortgage or loan may be covered, this leaves many other expenses not protected.
With Income Protection, you’re insuring a proportion of your salary against the risk of accident or sickness. This can include loan / mortgage repayments as well as other monthly costs.
Payment Protection Insurance may also have standard exclusions (such as no cover for back pain or mental health problems) and use a lesser definition of incapacity that could make it more difficult to make a successful claim.
For more information on the key differences see our Income Protection vs Payment Protection Guide.