Income Protection

Income protection suits anyone whose household relies on what they earn. It is often worth considering when:

• Your employer's sick pay is limited, or you would only receive Statutory Sick Pay.
• You are self-employed or a contractor with no sick pay at all.
• Your mortgage or rent, bills and family costs depend on your monthly income.
• Your savings would only cover a few months without work.

Do I need it if I have sick pay? Check how long it lasts. Many schemes pay full salary for a few months, then reduce or stop. A policy can be set to start paying when your sick pay ends.

1. You choose a monthly benefit, up to a limit the insurer sets based on your earnings.
2. You choose a deferred period. This is how long you must be off work before payments start, commonly 4, 8, 13, 26 or 52 weeks. A longer deferred period lowers the premium.
3. If illness or injury stops you working beyond the deferred period, the insurer pays you monthly.
4. Payments continue until you return to work, the policy term ends, or you reach the claim period limit. Full-term policies can pay until the end of the policy. Limited policies pay for up to one, two or five years per claim.

How "unable to work" is defined matters. Own occupation cover pays if you can't do your own job. Other definitions only pay if you can't do any suited job, or certain everyday work tasks. We'll explain which applies before you decide.

Many policies also pay a reduced benefit if you return part-time or on lower pay, and some include rehabilitation support.

How much cover. Insurers limit the benefit to a share of your earnings, usually around 50% to 70% of gross income. Self-employed income is usually based on your taxable profit from recent accounts. Directors can often include salary and dividends, depending on the insurer. We start from what your household needs each month.

What it costs. The price depends mainly on your age, health, occupation and smoking status. It also depends on the monthly benefit, the deferred period, the claim period and the length of the policy. Premiums can be guaranteed or reviewable, and we'll explain the difference.

Tax. If you pay for a personal policy yourself, the monthly benefit is normally paid tax-free. A policy paid for by your company is treated differently, and we'll explain the options.

• It doesn't pay a lump sum. For a one-off payment on diagnosis of a serious illness, that's critical illness cover.
• It doesn't usually cover redundancy or losing work for reasons other than illness or injury.
• It doesn't pay during the deferred period. You need sick pay or savings to cover that time.
• It can exclude conditions you've had before, depending on your medical history. We'll tell you about any exclusions before you accept.
• It won't pay more than the insurer's limit, even if you hold more than one policy. Insurers take other income protection benefits into account.