Do I need income protection insurance? Two scenarios to consider

27th June 2024

If the unexpected occurred in your life, you would likely be very thankful for the support system you have in place – be it savings, the right healthcare, or financial protection in the form of insurance.

One important form of cover that could be life-changing for your family is income protection insurance, which could support you with regular payments in a time of need. This insurance pays a monthly sum that could make up between 50% and 60% of your regular income, helping you to pay essential expenses if you’re unable to work.

Sadly, Cover Magazine reports that 67% of adults don’t have income protection insurance.

Understandably, many people believe that most forms of insurance are a “waste of time” and “won’t pay out”, leading to the majority of adults being under-protected. A survey published by Unbiased in 2022 reports that respondents believed around 50% of insurance claims are usually rejected.

In fact, the latest data from the Association of British Insurers (ABI) reveals that in , 84.4% of income protection claims were paid out, with the average value of payouts standing at nearly £22,000.

All this to say: income protection insurance could be critical to your family’s financial wellbeing during a time of crisis.

Keep reading to learn two instances in which income protection insurance could shield your wealth and bring peace of mind.

Scenario 1: You are diagnosed with a life-threatening illness

Whilst an unthinkable scenario that will hopefully never happen, being diagnosed with a serious illness could prevent you from working for a period of months or years.

If this were to happen, you may benefit from sick pay that your employer provides – but usually, this runs out after a fixed period of weeks or months. And Statutory Sick Pay, at the time of writing, stands at £116.75 a week and lasts up to 28 weeks; this is hardly enough to cover most people’s essential costs.

If you are the breadwinner of your household, or earn an equal amount to your spouse or partner, needing up to a year or more off work could seriously affect your financial viability. You might have enough saved up in your emergency fund to cover the essentials, but using up your entire savings pot could put your future financial stability at risk.

This is where income protection cover could come in handy.

Most plans pay out continuously until you return to paid work or retire. Receiving up to 60% of your income each month could mean you can:

  • Keep up mortgage repayments
  • Cover essential bills and household expenses
  • Maintain your savings rather than depleting them
  • Gain financial peace of mind during a very difficult time.

Financial stress is the last thing you may want to experience after a diagnosis.

Working with a Financial Planner could help to ensure you’re covered, meaning you can take the time you need to recover without worrying about your financial stability.

Scenario 2: You are involved in an accident that reduces your mobility over the long term

Importantly, as you read above, income protection cover may pay out over the long term, either until you return to work, or you retire.

This money would be an essential buffer if you were involved in an accident that affected your ability to work long-term, or perhaps even forced you to stop work before your planned retirement age.

In this scenario, you and your family could benefit from a regular tax-efficient payment until you reach retirement age. Adding an essential safety net to your finances, these payments could:

  • Allow you to focus on your health and wellbeing after a significant injury
  • Prevent you from depleting your retirement savings due to being unable to work
  • Give your family the peace of mind that they can continue their lifestyle with confidence.

So, if you have ever asked yourself, “Do I really need income protection insurance?” it’s likely that you now know the answer.

Serious accidents and illnesses don’t happen to everyone, but there is no telling what the future holds. Rather than living with the anxiety that these “what if?” scenarios might cause, you could choose to protect yourself and your family against financial disruptions if they occurred.

A Financial Planner will help you access a package of protection designed for your family

Your family’s situation is unique. Whilst we believe that protection is essential for everyone, we know that your income, savings, health needs, and life stage is personal to you.

So, when you work with a PenLife Financial Planner, we’ll ensure that your package of protection is designed specifically for your needs. This means you won’t be paying for unnecessary cover each month, and instead may benefit from exactly what you need if the worst happens.

To talk to a professional about protecting your family’s wealth, email us at, or call 01904 661140.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

All contents are based on our understanding of HMRC legislation, which is subject to change.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product providers and will be explained within the policy documentation.


Category: Protection