Most people insure their car and their phone. Rather fewer insure the thing that pays for both: their income.
- You are more likely to be off work long-term than to die during your working life.
- Employer sick pay often runs out sooner than people assume.
- 'Own occupation' cover is materially better than 'any occupation'.
- Life cover written in trust usually pays out faster and outside the estate.
What is the difference between life cover, critical illness and income protection?
- Life cover. Pays out on death — usually the first thing people arrange, often through a mortgage.
- Critical illness cover. Pays a lump sum on diagnosis of a specified serious condition. Definitions matter enormously here.
- Income protection. Replaces a proportion of your income if illness or injury stops you working. Usually pays monthly until you recover, retire, or the term ends.
Why do so few people have income protection?
You are statistically far more likely to be unable to work for a period than to die during your working life. Yet income protection is consistently the least arranged of the three.
Part of the reason is that people overestimate what an employer will provide. Company sick pay commonly runs to a few months. After that, for many households, the position becomes difficult quickly.
What should you check before buying protection cover?
- How long could you manage? Count the months your savings and sick pay would genuinely cover.
- What does "unable to work" mean in the policy? Cover based on your own occupation is materially better than cover that stops paying if you could do any job at all.
- How long is the waiting period? A longer wait reduces the premium — but only helps if you can bridge the gap.
- Is it written in trust? For life cover, a trust usually means the money reaches the right people quickly and outside the estate.
Where is money most often wasted on protection policies?
Cover bought years ago and never reviewed. Policies duplicating something an employer already provides. Life cover with no trust in place, so the payout sits in the estate and may be taxed. And cover sized to a mortgage that has since reduced considerably.
Why is protection the part of a plan people put off?
Protection is the part of a financial plan nobody enjoys arranging, and the only part that matters on the worst day. It is worth an hour of your time and a proper review.
Protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. This article is general information, not personal advice. The suitability of any protection arrangement depends on your circumstances and the terms of the policy. Tax treatment depends on individual circumstances and may change in future. The information contained within this article was accurate at the date of publication and is subject to change. Reviewed by Bright Wealth before publication.