It Pays to Plan: Personal Income Protection Insurance

Posted on July 29, 2020

Illness or injury leading to an absence from work of at least one month affects 1.4 million people every year according to government figures released in July 2019. That’s 4% of the working age population. Furthermore, 100,000 of those people do not return to work. Despite this, surprisingly few people have measures in place to combat this risk.

Could you last more than a month without a salary?

A YouGov poll of over 5,000 people revealed that, even though over one in five would not be able to stop work for more than two or three months without defaulting on their mortgage or rent payments (and double that number would not be able to last for even four weeks without their salary).

Over a third of young adults are burdened with monthly non-mortgage debt payments – and this this figure rises to half of all people aged between 25 and 44.

And yet fewer than one in twenty of these same people had put insurance cover in place to protect their income.

The importance of planning to cover your essential outgoings

People are increasingly unable to rely on the State for help, with benefits falling further behind the cost of living or being withdrawn altogether. Since April 2018, support for those unable to continue to make mortgage interest payments due to illness has been changed from a benefit to a loan. Previously, although the principal mortgage repayment was always due, the government would cover interest due throughout a period of sickness that prevented a person from working.

Furthermore, to stand a chance of qualifying for a loan under the new system you need to have been awarded Pension Credit, Income Support, Jobseekers’ Allowance, Employment Support Allowance or Universal Credit.

Many couples are just as much at risk as individuals

Even households with two breadwinners are at risk of financial hardship were one to become ill. According to the latest ONS statistics (released at the end of 2019), there are 16.3 million couples living together in the UK. A YouGov survey of people who were part of a cohabiting couple has indicated that there could be as many as 6 million ‘DINO’ (or ‘Double Income, No Option’) couples – that is, partners living together who rely on both persons’ incomes to cover their living expenses.

Today’s typical family home, with or without children, is a far cry from the ‘one breadwinner, one homemaker’ family unit from decades past. Of the YouGov survey respondents, 51% were part of a couple who both worked, with 37% stating that the household was reliant on both incomes and the majority of these (30%) expecting that this situation would need to continue until retirement age. Sadly, 21% expected that both partners would need to continue to work for the rest of their lives.

Could you live off your personal savings for three months?

The Money Advice Service recommends that individuals who need a weekly or monthly salary to main their standard of living set aside an emergency fund capable of covering 90 days’ worth of outgoings.

If a limited income makes this an impossibility, then it is surely of prime importance to find room in your personal  monthly budget for insurance that would cover your share of any vital living expenses if work became impossible due to ill health. And yet well under half of people surveyed (41%) actually had such insurance in place.

The need for income protection increases as we age

Currently there are over ten million people working in the UK who are 50 or older, and it is estimated that by 2025 one in three of the workforce will be over 50. As we age, the likelihood of a long-term sickness rises: in fact, it is double in the over-45s compared to the under-45s.

Working whilst ill is becoming increasingly common

A 2019 survey on sickness in the workplace commissioned by a major insurer found that nine out of ten employees surveyed had been into work whilst feeling as if they would rather stay at home: 42% of those questioned had not taken a single day off sick in the past twelve months, with over half stating that this was for financial reasons. In other words, as many as one in five people working do not feel they can afford to take even a short leave of absence from work.

Protect your salary

Planners often like to talk about financial ‘resilience’, or the ability to withstand the unexpected and unwelcome, and the available information indicates that many people are most decidedly not prepared for all that life can throw at them.

This is where Income Protection (or just ‘IP’) Insurance comes in: policies provide for a monthly income for as long as you need to recover from an illness or injury that prevents you working, allowing you to continue paying mortgage/rent and bills.

GIP / Group Income Protection

As the names suggest, Individual Income Protection is a policy that you would take out of your own volition, whereas Employer Provided Income Protection – also known as ‘Group Income Protection’, or just ‘GIP’ – is taken out on your behalf as part of a employee benefits package.

Protection throughout your working life

Most policies will allow multiple claims so long as cover remains active.

Be sure you understand the exact protection your plan affords

It is possible to get insurance cover for stress-related illnesses and mental health problems, but it is very important to be certain of the exact circumstances that are covered.

For instance, some policies will only cover you if you are incapable of doing any work, rather than not being able to pursue your normal occupation. Do be aware that Income Protection is not intended to cover redundancy: it is not job loss insurance. And there is rarely any cash-in value or retained equity in the policy should payments towards it cease.

We’ve more information on exactly how PIP polices are put together here.


No guarantee can be given that the information provided is accurate in the present or the future. It is not intended to constitute either a statement of applicable law or financial advice, and responsibility cannot be accepted for any subsequent loss following activity or inactivity by any individual or organisation. Indeed, such information should NOT be acted upon without first receiving appropriate and specific professional advice.