Income Protection

Firstly, you should check what provision, if any, your employer makes if you are unable to work through illness or injury. Some are generous, others simply stick to the bare minimum required by law, as follows:

If you're unable to work under a contract of service for at least four days in a row, and earn at least £123 per week (before tax), then you'll normally receive weekly Statutory Sick Pay (SSP) of £94.25 which is taxable as normal. SSP is paid for every day you'd normally be working, starting from the fourth day of sickness and lasting for up to 28 weeks.

If, after SSP has ended, you are still unable to work then you could be eligible for an Employment & Support Allowance (ESA). ESA is unfortunately more complex than the Incapacity Benefit it replaced (and would take up most of this website to fully explain!), but in simple terms you could receive a basic payment of £73.10 per week, or £57.90 per week if under 25, for 13 weeks while your ability to work is assessed. After this you might receive an extra £25.50 per week, but there's a number of scenarios where it could be different. For more detailed information visit the DWP website and drink a strong cup of coffee to keep you awake.

The self-employed are not entitled to Statutory Sick Pay (SSP), but can potentially claim the Employment & Support Allowance (ESA). To be eligible you must have actually paid Class 1 or 2 contributions in one of the last three tax years before your claim and also have paid contributions, or received NI credits, in the last two tax years before claiming.

If paid, the ESA benefits are the same as those outlined in the employee section.

Pays out a monthly tax-free income if you're unable to work for a specified number of weeks, known as a 'deferment' period. You can typically choose a deferment period between four and 52 weeks, the greater the period the lower the premium (as it's less likely you'll claim).

You also choose the level of income to be protected and the age (usually your retirement age) that the policy will run until. Because income protection payouts are tax-free and your usual earned income is taxable, you're generally limited to insuring around 50 - 75% of your income to stop you from potentially making a profit.

Premiums can be either guaranteed (i.e. fixed) or reviewable. Reviewable usually start off cheaper but can soar over time, so guaranteed is generally preferable if you're planning to keep the policy for a while.

Always check the conditions of a policy to understand exactly what's included and excluded. For example, some policies will payout the full amount if you can't carry out your usual job, while others may payout less if they believe you're capable of carrying out a different job.

These types of insurance (usually covering credit cards, loans and mortgages) are often called 'payment protection' or 'accident, sickness & redundancy' plans. They're intended to help you manage your debts if unable to work through illness or injury and, unlike income protection, often include redundancy too.

Loan providers usually try to sell these policies alongside loans (and credit cards etc.) because it's profitable business. Someone aged 30 could expect to pay around £50 a year per £100 of monthly income/loan repayment protected, and payouts normally have a six to 12 month limit.

This is expensive insurance, but if you do want it then at least shop around as the premiums offered by your loan provider are likely to be uncompetitive.

These payout a lump sum in the event you have an accident and suffer a permanent or temporary disability. The scope and level of cover can vary widely between providers, so check carefully. Given today's 'where there's a blame there's a claim' culture, you could take the view that if you have an accident there's a fair chance you could sue someone for negligence, hence you don't need insurance.

The older you are the more likely you'll suffer from illness during the policy term, hence higher premiums.

The longer the period before you can claim the lower the premium (as it's less likely you'll make a claim).

Premiums tend to be higher for women because history suggests they are more likely to make a clam.

If you suffer from health problems and/or are overweight your premiums might be higher than normal.

If you have a history of medical problems in your family, e.g. heart disease or cancer, your premiums might increase.

Premiums for smokers are normally higher than those of non-smokers.

If you have a dangerous occupation or hobby then expect higher premiums. Some insurers might even refuse to insure you.

Buying an income protection policy direct from an insurer is unlikely to be any cheaper than using a discount broker and might be more expensive.

If you buy income protection through a financial adviser they normally charge a fee for their advice.

Income protection is fairly straightforward, although there are more potential pitfalls compared to buying term assurance, so using an adviser would be worthwhile if you don't feel confident choosing a policy yourself.

Usually the most cost effective option if you know what you're doing. If you're comfortable choosing a policy, level of cover and deferment period then using a discount broker should earn you either a nice commission rebate or a discounted premium.