Is income protection insurance worth it?

In reality, how long do you think you would be able to manage if you became ill or had an accident? Many people insure their car, their pets and even their home belongings before even considering insuring the income that pays for all of them. However, unexpected weeks or months off work could result in a much larger financial impact than simply losing your belongings or damaging your car ever would.

This is where income protection comes into play. In this guide, we explore what income protection is and why it is so important for tradespeople. We'll explain why income protection may be worthwhile if you would struggle to keep up with payments during a prolonged absence from your job, how the insurance works, and briefly look at the differences between this type of insurance and others.

What is income protection insurance?

Income protection insurance is a type of cover that pays you a tax-free percentage of your salary if you’re too ill or injured to work. It can be a vital form of cover if you have limited savings, or if you’re self-employed and don’t have access to statutory sick pay.

How does it work?

Before taking out an income protection insurance policy, you choose the level of cover you want. Most insurers cap the amount you can protect at around 50-70% of gross earnings - income protection is there to support you through hard times, not leave you better off than you would be by working. You can also choose between long- or short-term cover. 

Deferred period

Income protection comes into effect after an agreed waiting period. The ‘deferred period’ is the length of time between becoming unable to work and when your income protection payments begin, and can be anywhere from a few weeks to 12 months. Generally, the longer waiting period you choose, the lower your monthly premiums will be.

For example:

• If your employer provides full sick pay for three months, you may choose a 13-week deferred period, so your income protection payments start once your sick pay ends. 
• If you're self-employed and don’t receive sick pay, a shorter deferred period may be more suitable, but be aware that policies with shorter waiting periods typically come with higher premiums. 

Own occupation cover

An ‘own occupation’ policy pays out if an illness or injury prevents you from carrying out the specific job you do. This generally provides a higher level of protection than policies that only pay if you’re unable to do a suitable alternative job, or any job at all.

When comparing policies, it's important not to focus solely on the cost. While a lower premium may be appealing, the conditions under which a claim will be paid are equally important. Some policies may assess whether you could work in another suitable occupation, or undertake any type of work, rather than considering whether you can return to your current profession.

What does income protection cover?

Having an income protection policy in place can help maintain your standard of living if illness or injury prevents you from working. If your personal savings alone wouldn’t be enough to cover your household bills, income protection can help to pay for:

• Car loans or transport
• Mortgage or rent payments 
• Childcare costs
• Household bills 
• Food shopping

It’s hard enough being too ill to work, or having gone through an accident that leaves you stuck at home, but financial stress on top of that can have a major impact on your mental health, and could even impede your recovery. The main benefit of income protection is knowing you will still be able to cover daily expenses, so you can focus on recovery and returning to work.

What would income protection not cover?

Typical exclusions or limits on your income protection insurance policy may include:

• Redundancy Income protection insurance does not cover loss of employment due to redundancy. It’s intended to provide cover if you're unable to work because of illness or injury.
• Pre-existing medical conditions Depending on the insurer and your health history, certain pre-existing conditions are likely to be excluded from cover.
• Pregnancy and maternity leave Standard pregnancy and maternity leave are not usually considered valid reasons for an income protection claim; however, certain complications may still be covered.
• Self-inflicted injuries Claims arising from deliberate self-harm are typically excluded under most policies.
• Drug or alcohol-related conditions Insurers may decline claims for illnesses or injuries linked to drug or alcohol misuse.
• Hazardous hobbies and sports Taking part in high-risk activities may be excluded from your policy or result in higher premiums.
• Non-disclosure of information Claims can be rejected if incorrect, incomplete or misleading information was provided during the application process.

Every policy is different, so it’s in your best interests to check the fine print and policy wording before agreeing to anything. 

Is income protection worth investing in?

If being out of work would leave you financially unstable, then income protection can be a huge help. 

One of the biggest factors is considering how much sick pay you would receive (if any at all). If your employer provides generous sick pay, particularly for permanent employees, income protection insurance may not seem as essential. For many workers, this might not cover all of their outgoing expenses, and could leave them in a difficult financial position.

When would income protection be the best choice?

Income protection insurance might be suitable if you:

• Work in a trade and rely on being physically able to do your job
• Are self-employed or run your own business
• Have limited or no employer sick pay
• Are the main earner in your household
• Need to pay a mortgage, rent, or other fixed monthly commitments
• Have children or other dependants who rely on your income
• Have limited savings to fall back on
• Would struggle to cover essential bills after a few weeks or months off work

When would income protection not be the best choice?

Not everyone needs income protection – you may not need it if you:

• Already have employer income protection as a workplace benefit
• Have built up a good amount of savings that could replace your income for an extended period
• Have very low monthly outgoings and no financial dependants
• Could continue meeting your financial commitments even if you were unable to work for several months
• Are close to retirement and have accessible pension income or other reliable sources of income

Despite this, it’s always wise to check the details in the policy. Employer-provided benefits may end if you leave your job, change employers or are made redundant. Likewise, savings can be depleted more quickly than expected if an illness or injury keeps you away from work for an extended period.

How much does income protection usually cost?

Income protection insurance costs vary depending on factors such as your age, health, occupation, and the level of cover you choose.

For many workers, premiums typically start at around £10 per month for basic cover. However, manual jobs often drive premiums up and if you work in a higher-risk trade, such as roofing, scaffolding or construction, or if you're an older applicant or smoker, your quote could be much higher.

When comparing quotes, it's important to look beyond the monthly cost. Cheaper policies may come with longer deferred periods, shorter payout durations or exclusions that could limit your ability to claim when you need support most.

This is particularly important for self-employed tradespeople, whose income often depends on their ability to carry out physical work. Speaking to an insurance adviser can help you identify the cover that's most relevant to your trade and circumstances, ensuring you choose a policy that provides meaningful financial protection if illness or injury prevents you from working.

How does income protection compare to other types of insurance?

Critical illness cover

Critical illness cover provides a tax-free lump sum payment if you're diagnosed with a serious medical condition covered by your policy. The payout can be used however you choose, whether that's paying off debts, making adaptations to your home, covering additional treatment costs, or easing financial pressure while you focus on recovery.

However, cover is only triggered if your diagnosis meets the policy's specific definition of a covered condition. Unlike income protection insurance, it does not typically pay out simply because you're unable to work.

Life insurance 

Life insurance is there to provide money to your chosen beneficiaries if you pass away during the policy term. Some policies provide cover for a fixed number of years, while others can remain in place for the rest of your life.

Its main purpose is to provide financial security for the people who depend on you. The payout can help cover mortgage repayments, everyday living expenses, outstanding debts, or other costs your family may face after your passing.

Life insurance differs from income protection as it doesn’t provide a replacement income if you become ill or injured and are unable to work; it only comes into effect upon your death.

If you run your own company, you can find out how to ensure your insurance is right for your business in our useful guide.

Becoming a Which? Trusted Trader

Investing in income protection can help ensure your day-to-day life continues without financial stress should illness or injury prevent you from working. However, money isn't the only pressure when you're unwell or injured. As a Which? Trusted Trader, you can access a legal and wellness helpline, giving you access to practical guidance and support when things feel overwhelming, among many other benefits for your business. 

Ready to protect your business and your reputation? Join the scheme today and show customers you're endorsed, driven and committed to doing the job properly.