What would happen to your finances if you couldn’t work? Here’s how to plan ahead

When you’re busy with everyday life and working towards your goals, it’s easy to overlook the possibility of illness or injury.

Life is full of unexpected twists and turns. Whilst you can’t always control your health, you can help protect your family against the financial impacts of lost income.

However, a recent study by HomeOwners Alliance found that 91% of homeowners have not discussed with their partner or a family member what would happen to their finances if they couldn’t work. In many cases, this lack of preparation could expose your family to preventable risks.

Read on to learn how you can plan for the unexpected and help protect your family’s finances.

Income protection can replace some of your lost income

If you become unable to work due to illness or injury, income protection can replace a portion of your lost income.

When taking out your policy, you can choose how much of your income you would like to protect, usually up to a maximum of 70% of your usual earnings.

Payments are usually monthly and start after your chosen waiting period. The minimum waiting period is typically 30 days, with the first payment due 30 days later. If you have other sickness benefits, such as paid sick leave through your employment, you might opt for an extended waiting period of up to two years, which may lower your premiums.

Payments will typically continue until you return to work, retire, or reach the end of your policy term. If you choose a short-term policy, payments may stop after a defined number of years.

There are numerous variables to consider when identifying suitable cover for your needs. Our Protection Specialist can support you to evaluate your options, working alongside PenLife’s Financial Planners to ensure your protection aligns with your circumstances.

Learn more about our protection and insurance services.

It’s worth noting that some employers offer income protection as a benefit of employment. So, it’s wise to check what cover you already have before committing to a new policy.

Read more: 94% haven’t checked their workplace sickness benefits. Are they enough to protect your finances?

Critical illness cover can pay out a lump sum on diagnosis of certain conditions

Another option for illness protection is critical illness cover. These plans usually pay out a one-off, tax-free lump sum if you’re diagnosed with one of the conditions listed in your policy.

You can use the lump sum however you wish. For example, you might use the money to replace your lost income whilst you’re unable to work, cover care and treatment costs, or adapt your home to your evolving needs.

Whilst critical illness cover can sometimes provide a significant one-off payment (depending on your policy), it’s worth noting that you will typically only be covered for specified severe, life-altering conditions. What’s more, because the full payment is upfront, this type of protection might not offer the same longevity as income protection.

However, you don’t necessarily need to choose between income protection and critical illness cover. Depending on your needs and circumstances, it may be appropriate to take out both types of cover simultaneously. Our Protection Specialist can support you in identifying the appropriate cover for your circumstances.

As well as income protection, it’s worth checking if you already have critical illness cover as an employee benefit. If you do, it’s important to carefully review your policy details to ensure they offer sufficient cover for your needs.

Talk to your partner or close family about your plans

Whilst it may not be pleasant talking about becoming unwell and unable to work, it’s important to discuss what would happen financially with your partner or a close family member.

This is particularly important if your household relies on more than one income. Ideally, you need protection against all earners becoming unable to work, especially if you would struggle to pay vital bills such as your mortgage.

Working together to create a protection plan can help ensure your family has a safety net to fall back on. So, should you or your partner become unwell, you can focus on recovery without worrying about your finances.

Protection can help give you peace of mind

Like most types of insurance, you hope you’ll never need to claim on your income protection or critical illness cover.

But knowing you have suitable cover to protect you and your family can give you peace of mind. You may find you can rest easy knowing that, if you or your partner becomes unable to work due to ill health, you will still be able to pay the bills.

In most cases, you can expect your insurance to pay out, provided:

• Your illness meets the criteria in your policy
• You have kept up with premium payments
• You disclosed all required medical information when you took out the policy.

Research by the ABI found that 97.9% of new individual claims on vital protection were successful, as of 2024.

It’s crucial to understand exactly what you’re covered for and what you’re not. That way, you can create a plan for circumstances that fall outside of your policy, such as building your emergency fund or taking out additional cover.

Get in touch

To find out more about how our Protection Specialist could support you in identifying suitable cover for your needs, get in touch.

Email us at enquiries@pen-life.co.uk or call 01904 661140.

Please note

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

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

Note that life insurance and financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

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

Your home may be repossessed if you do not keep up repayments on your mortgage.