Why consider income protection?

Most people insure their home, their car and their phone, but their ability to earn is what pays for all of them. If a back injury, an operation with a long recovery or a period of poor mental health kept you off work, the mortgage or rent, energy bills, food and loan repayments would still be due.

A useful starting point is to list three things:

• •Your essential monthly spending: housing, utilities, food, travel, childcare and debt repayments. Leave out the things you could stop for a while.
• •What would still come in: employer sick pay, a partner's earnings, or any other income that does not depend on you working.
• •How long your savings would last: divide your accessible savings by the gap between the two. That is the number of months you could manage on your own.

If the answer is measured in weeks rather than years, a long absence would put real pressure on the household. That gap is what income protection is designed to fill.

The policy pays a monthly benefit once you have been unable to work for a set time, called the deferred period. It keeps paying while you remain unable to work, up to the limit of the policy, and stops when you return to work, the payment period ends or the policy ends. Our income protection product page explains the policy features in more detail. At a high level, three choices shape what you get:

How much it pays

Insurers cap the benefit at a proportion of your earnings, typically between 50% and 65% of gross income. The aim is to cover your essentials, not to match your full salary.

When it starts

Deferred periods commonly range from 4 weeks to 52 weeks. A longer wait lowers the premium, so the sensible choice is usually the point at which your sick pay ends or your savings would run low.

How long it pays

A full-term policy can pay until you recover, retire or reach the end of the policy term. A limited payment policy pays for a capped period on each claim and costs less, but may stop while you are still unwell.

Employer benefits normally stop when you leave that job, so it is worth checking what you would have if you moved employer or became self-employed.

The premium, and how much cover makes sense, depend on:

• •Your earnings, which set the maximum benefit an insurer will allow
• •Your essential spending, which is often a better guide to how much you need than your salary
• •The deferred period, which is the biggest single factor in the price
• •Whether the policy pays until retirement or for a limited period on each claim
• •Your occupation, because some jobs lead to more frequent or longer claims
• •Your age, health and smoking status, and the definition of incapacity the policy uses

If the full cover you would like is out of reach, a longer deferred period or a lower benefit focused on essential bills can bring the cost down while still protecting against a long absence.

Income protection pays when you cannot work because of illness or injury and you meet the policy's definition of incapacity. It is not a general replacement for any lost income.

It is also different from a lump sum policy. Critical illness cover pays once if you are diagnosed with a condition that meets the policy's definition, whether or not you stop working. Income protection pays monthly for as long as you qualify, within the policy limits, whatever the illness or injury, subject to any exclusions.

Start with your essential monthly spending and what you would receive from your employer if you were off sick. With those two figures we can suggest a benefit amount and a deferred period that fit, and compare policies on their definitions and terms, not only the price.

If you already have cover through work or an older policy, our guide to reviewing your existing protection sets out what to check before adding anything new.