Most people with a mortgage have life insurance. Far fewer have income protection — yet statistically, you are far more likely to be unable to work than to die during your working life.
If I ask a room full of homeowners whether they have life insurance, most hands go up. If I ask the same room about income protection, I am usually met with silence, a few uncertain looks, and occasionally someone saying “isn't that the same thing?”
It is not the same thing. And to be honest, this gap in protection is one of the things I spend most of my time talking about as a financial adviser — because the consequences of getting it wrong can be severe.
I always start with a simple question: if you could not work for six months — whether through illness, injury, or something else entirely — what would happen to your finances?
Most people pause. Then they run through their mental list. Sick pay from work — but that runs out. Savings — but not enough to last long. Statutory Sick Pay — which is currently £116.75 per week. And then they look at their mortgage, their childcare costs, their car payment, and they start to feel the shape of the problem.
Life insurance pays out when you die. That matters enormously, and I do not want to downplay it. But if you are 35 years old and you develop a serious illness that means you cannot work for two years, life insurance does nothing for you. You are still alive. Your bills still arrive. Your mortgage lender does not care that you have cancer — they still want their payment.
Income protection is a policy that replaces a significant portion of your income — typically between 50% and 70% — if you are unable to work due to illness or injury. It is not a lump sum. It pays you a monthly income, usually tax-free, for as long as you need it — up to a maximum term you choose at the outset, which is often your retirement age.
There is a waiting period — called a deferred period — before the policy pays out. This might be four weeks, thirteen weeks, twenty-six weeks, or longer. The longer you can wait before needing the money, the cheaper the policy. Most people set this to align with when their employer sick pay runs out.
To be clear: this is not the same as payment protection insurance (PPI), which is the mis-sold product that caused so much harm and rightly attracted regulatory intervention. Income protection is a very different, and very valuable, product. The confusion between the two has unfortunately put some people off exploring what genuine income protection can do.
Here is something that stops most people in their tracks: according to figures from the Association of British Insurers, one in four people in the UK will suffer a long-term illness or disability at some point during their working life that prevents them from working for more than six months.
One in four. The probability of dying during your working life — the risk that life insurance addresses — is significantly lower.
Yet income protection is dramatically underinsured in the UK compared to life cover. This is partly a marketing issue — life insurance is simpler to explain and historically easier to sell. But it is also a reflection of the fact that many people have not been properly shown why income protection matters so much.
When I raise income protection, I often hear one of three responses. The first is “my employer covers me.” Sometimes this is true — some employers offer long-term sick pay, or what is called group income protection, as part of their benefits package. But many do not. And even those that do usually cap the benefit at two or five years. If your illness lasts longer, you are on your own.
The second is “I could manage on savings.” I respect that, and if your savings are genuinely substantial, it may be true. But most people's savings are nowhere near the level that would cover two or three years of lost income. A personal income protection policy gives you certainty. Savings give you a runway that eventually ends.
The third — the one I find most challenging — is “it will never happen to me.” I understand this. Nobody wants to imagine being seriously ill. But financial planning is about protecting yourself against the things you cannot predict. The whole point of insurance is that you do not know when you will need it.
Cost depends on several factors: your age, your occupation, whether you smoke, your health history, the level of income you are insuring, and the deferred period you choose. As a rough guide, a healthy non-smoking 30-year-old in a professional occupation might pay £30–£50 per month for a policy providing £2,000 per month of income. That is less than most people spend on subscriptions they have forgotten about.
I do not give specific quotes in articles, because the right answer is genuinely different for everyone — your situation, your occupation, your existing cover, and what you can afford all play a role. But the principle holds: for most people, income protection is more affordable than they assume, and more necessary than they realise.
The first step is to understand what you already have. Check your employment contract for any sick pay provisions. Check your benefits package. Then work out what your actual monthly outgoings are — mortgage, bills, food, childcare — and what gap would open up if your income stopped.
Once you have that picture, you are in a much better position to have a conversation about what protection you actually need. That is exactly the kind of conversation I have with every client — not selling them the most expensive policy, but helping them understand their exposure and find the right level of cover for their life.
A conversation with Jack costs nothing and comes with no obligation. It is a chance to understand where you stand — and whether there are gaps worth filling.