Deciding whether or not any insurance is ‘worth it’ is a tricky one. You might only deem it’s been worth it if, in an unfortunate turn of events, you end up needing it. But with income protection (as with other products like life insurance and critical illness cover), the peace of mind being covered brings is also a big factor, especially as becoming too ill or injured to work for a long time is probably more likely than you think.

When choosing whether or not to buy cover, it’s often a case of weighing up the cost of being covered vs. the risk of not being covered, along with the peace of mind having it can bring. Income protection is often worth it if you value peace of mind – and if the risk of not being covered is too great in your circumstances.

What is income protection and what’s it for?

With income protection insurance in particular, it’s important to start by making sure you’re clear about what it is, what it’s for, and what is/isn’t covered. So, first, what is it? It's an insurance policy that pays out a monthly amount if you’re too ill or injured to work.

What is income protection

People typically claim for things like long-term back pain, depression, or serious injuries caused by accident, and also for serious illnesses like cancer, heart attacks and strokes. So long as it leaves you incapable of doing your job, according to your insurer’s definition of incapacity, you can claim on your income protection policy for any medical reason.

Most commonly claimed income protection conditions

And what’s it for? It’s designed to protect you financially if you’re unable to work for medical reasons, especially if you end up being off for a long time. This type of cover can provide more sufficient, longer-term protection than employer or statutory sick pay, for example. It also means not having to turn to savings, other assets, or other sources of income if you become unable to work – an alternative which lots of people don’t have or, for those that do, is unlikely to be sustainable long-term.

What’s the risk if I don’t have income protection?

If you don’t have income protection insurance, you’re living with the risk of being unable to keep up with the cost of life if you lose your income through illness or injury. Obviously this risk will be different per person, depending on your individual circumstances – like what financial commitments and dependents you have. How long you end up being unable to work and what financial impact that could have on you also plays a part.

Lots of people would face financial hardship, straight away or over time, if they lost their income for medical reasons. This is because so many of us do have financial commitments, like paying for rent/mortgage, food and bills, which don’t go on hold when you become unable to work.

Many of us also have partners or children who rely on our income too – so it’s easy to see how a missing income can end up having significant, long-lasting financial consequences. What’s more, according to LV’s Risk Reality calculator, the chances of facing a period of illness or injury that leaves you unable to work for a long time may be higher than you think:

% of people who’ll face a 2-month period of being unable to work because of illness or injury before retirement at 68
Age/gender Smoking Non-smoking
30-year-old male 43% 34%
30-year-old female 52% 43%
40-year-old male 39% 31%
40-year-old female 48% 39%

The question to ask yourself is: if you were too unwell to work, would you be able to keep up with the cost of life? The answer to this will tell you whether or not it’s worth getting covered.

Does income protection cover me if I’m made redundant?

No, income protection insurance only covers you for loss of earnings that are brought about by medical reasons – mental or physical, illness or injury. Although redundancy is something that can also cause unexpected financial hardship, income protection is not the right insurance product to protect yourself against this risk, because it won’t pay out in that circumstance.

Does income protection cover redundancy

Will my income protection insurer pay out?

If you’re unable to work for medical reasons then yes: the policy will pay out, so long as a doctor signs you off as being unfit to work and you meet your insurer’s definition of incapacity. It’s important to know how your insurer will assess this; in many cases it’ll be on what’s known as the own occupation definition. This means if you’re no longer able to do the main tasks your job requires because of your illness or injury, your policy will pay out.

When does income protection pay out

How long your income protection policy pays out for while you’re unable to work depends on what type of cover you have. Short-term cover will pay out for the fixed amount of time agreed in your policy (e.g. 1, 2 or 5 years) or until you’re well enough to return to work; long-term cover will keep paying out until you’re well enough to return to work or your policy ends. It’s also worth bearing in mind that your income protection won’t start paying out until after your waiting period, also agreed when you take out a policy.

Income protection waiting period

This is also a good point to mention the importance of full disclosure when applying for cover like this. Most rejected claims are due to what’s called ‘misrepresentation’ – in other words: providing inaccurate health and lifestyle information when you apply for a policy. We’ll always remind you to be as accurate and honest as possible about you, your health and your lifestyle when you first take out the policy – as that way, your income protection policy will be most likely to pay out if and when you need it to.

Is income protection insurance worth it for you?

It depends what losing your income for health reasons would mean in your circumstances. If it could cause you significant financial hardship and you can’t live with that risk, it could be a very worthwhile kind of cover to have in place.

Anorak exists to help you work this out. With our online tool, we ask a few quick questions about your life and finances to calculate how much cover you need (if any). If it's worth you getting cover, we'll recommend the right options for you and match you to policies from the whole market, only showing you the ones that are genuinely suitable. So it's easy for you to make the right choice.

Let's work out if income protection is worth it for you. First, what's your age bracket?
  • Income protection can be extremely worthwhile, especially as the chances of suffering from a long-term illness or injury are probably higher than you think
  • It helps you cope with the financial consequences of an illness or injury that stops you being able to work for a long time, providing peace of mind, especially if you’re a breadwinner
  • It provides more sufficient, longer-term protection than sick pay or savings/other assets – and allows you to keep the latter in tact, if you have them
  • It’s paid as a monthly sum to replace part of your missing income, ensuring you have what you need each month to keep up with your household’s expenses
What doesn't income protection cover?
Income protection doesn’t cover loss of income that isn’t health-related – like redundancy, resignation or unemployment. As standard, policies cover you if you can’t work for any medical reason, though there might be an exclusion placed on your policy depending on what you disclose about your health when you take out the policy.
Why is income protection so expensive?
Income protection provides very comprehensive cover if you can’t work for health reasons, as insurers will pay you a monthly income of around 50-60% of your salary. Opting for short-term instead of full-term cover can make it more affordable. Similarly, agreeing to wait longer before your income protection payments kick in will mean cheaper monthly premiums.
Is income protection better than critical illness cover?
Income protection and critical illness cover are both insurance policies that cover you in case of illness. Which one’s right for you depends on your circumstances, but one of the benefits of income protection is that it pays out if you can’t work for any medical reason – not just the list of illnesses specified in your policy (which is how critical illness cover works). It also pays you a monthly amount, so you maintain a steady income, instead of as a lump sum.
Can I claim benefits if I have income protection insurance?
Yes, you can claim government benefits even if you have income protection insurance. However, benefits are usually means-tested, so the income protection benefit you receive may affect how much you’re eligible to receive in benefits.
Does income protection cover job loss?
No, income protection doesn’t cover you if you lose your job or get made redundant. Income protection only covers you if you can’t work for health reasons.