Is Income Protection Worth It? Exploring Financial Peace of Mind for Families

Life can be wonderfully unpredictable, but sometimes those unexpected twists can bring financial challenges. If you are a woman in the UK, especially a mum, you might often find yourself thinking about your family’s financial security. The idea of being unable to work due to illness or injury, and the potential impact on your household income, can be a real concern. This is where income protection insurance could offer a layer of financial support.

At Polly, we understand that providing for your family is a top priority. Income protection insurance is not just about a policy; it is often about helping to safeguard your financial future, should unforeseen circumstances arise. But is income protection worth it for your family? Let’s explore what it involves and how it could help you maintain financial stability.

What is Income Protection Insurance and How Could It Help?

Income protection insurance is designed to provide you with regular payments if you become unable to work due to illness or injury and, as a result, experience a loss of earnings. Unlike some other types of insurance, its aim is to help replace a portion of your regular income, allowing you to focus on your recovery without the immediate worry of how to cover essential expenses.

Consider this: many people in the UK might rely on their regular income to manage mortgage or rent payments, utility bills, groceries, and other daily living costs. If that income stops due to ill health or an accident, these essential expenses do not disappear. Income protection is intended to provide a steady financial payment during such challenging times.

Key Features of Income Protection:

Regular Payments: If you are unable to work due to illness or injury, the policy typically pays out a percentage of your lost earnings (often between 50-70%) after an agreed waiting period. This is not a lump sum, but rather a consistent payment designed to help you maintain your lifestyle.
Long-Term Support: Income protection policies can continue to pay out until you return to work, reach your retirement age, or for a set period, depending on the policy’s terms. This can offer longer-term reassurance than some other short-term benefits.
Cover for Various Conditions: These policies usually cover a wide range of illnesses and injuries that prevent you from working, not just critical illnesses. It is always important to check the specific terms and conditions of a policy to understand what is covered.

Why Might Income Protection Be a Valuable Consideration for UK Families?

For women managing household finances and often balancing work with family life, the potential for income loss can be particularly impactful. Here are some reasons why income protection could be a worthwhile consideration:

Bridging the Income Gap: Statutory Sick Pay (SSP) in the UK is currently £116.75 per week for up to 28 weeks (as of April 2024)*. This amount might not be sufficient to cover all household expenses. Income protection could help bridge the gap between SSP (or any employer sick pay) and your usual income.
Financial Protection for the Self-Employed: If you are self-employed, you typically do not have access to employer-provided sick pay or ‘death in service’ benefits. Income protection can be especially important for self-employed women to provide a financial safety net for their families if they cannot work. This policy is designed for your personal financial protection, not for business expenses.
Maintaining Your Family’s Lifestyle: Illness or injury can be stressful enough without the added burden of financial strain. Income protection can help ensure that you can continue to pay your bills, put food on the table, and potentially avoid dipping into savings or taking on debt.
The Unexpected Can Happen: Life’s uncertainties mean that unexpected illness or injury can affect anyone at any time. Around 2.6 million people in the UK were economically inactive due to long-term sickness in December 2023*, highlighting that health issues can impact earning potential.
Focus on Recovery: Knowing that a portion of your income is still coming in can allow you to focus on your recovery without the pressure of rushing back to work before you are ready. This can be particularly important when caring for children.

Understanding the Differences: Income Protection vs. Other Financial Protection

It can be helpful to understand how income protection differs from other types of financial protection, as each serves a distinct purpose in helping to secure your family’s financial future.

Income Protection vs. Life Insurance:
- Income Protection: Provides a regular income payment if you are unable to work due to illness or injury. It is designed to support you while you are alive and recovering.
- Life Insurance (like Polly Family Protection): This policy is designed to pay out a lump sum to your loved ones if you pass away during the policy term. Its aim is to help your family manage financially after your death, perhaps covering mortgage payments, childcare costs, or other living expenses.
Income Protection vs. Serious Illness Cover:
- Income Protection: Is designed to cover a wide range of illnesses and injuries that prevent you from working and to provide regular income payments.
- Serious Illness Cover: This policy is designed to pay out a lump sum if you are diagnosed with a specified serious illness (as defined in the policy). It aims to provide financial support for specific, severe conditions, whereas income protection typically focuses on loss of ability to work.

Considerations When Exploring Income Protection

When considering if income protection is worth it for your family, you might want to think about several factors:

Your Occupation: Some occupations might carry a higher risk of injury or specific illnesses, which could influence the cost and terms of a policy.
Your Savings: Do you have sufficient savings to cover several months, or even years, of living expenses if you were unable to work? If not, income protection could provide a crucial safety net.
Employer Benefits: Does your employer offer a sick pay scheme, and if so, how long does it last and how much does it pay? Understanding any existing benefits can help you assess your potential income gap.
Waiting Period (Deferred Period): This is the period after you become unable to work but before your payments begin. You can usually choose a waiting period that suits your financial situation and any employer sick pay. Longer waiting periods can sometimes result in lower premiums.
Payout Duration: Consider how long you would want the payments to last – whether for a set period (e.g., 1, 2, or 5 years) or until retirement, helping to align the policy with your long-term financial planning.

Empowering Your Family’s Financial Future with Polly

At Polly, we believe in helping women in the UK feel prepared for life’s challenges. Exploring comprehensive financial planning for your family’s future, which can include income protection, is something we champion. Our focus is on providing financial protection through policies like Polly Family Protection (Life Insurance) and Serious Illness Cover, which are designed to support your loved ones financially in specific circumstances.

Exploring all your financial protection options can be a proactive step towards helping to ensure your family’s financial security. It is often about understanding the different ways you can help safeguard your family against the unexpected.

The Aim: Financial Resilience

The decision of whether income protection is worth it is a personal one, depending on your individual circumstances, financial responsibilities, and appetite for risk. However, for many women looking to help protect their family’s financial future in the UK, it can be a significant component of a robust financial plan. It could offer you the reassurance of knowing that, should you face a period where you cannot work due to illness or injury, your financial obligations might still be manageable.

TL;DR: Income protection insurance provides regular payments if you cannot work due to illness or injury, helping to replace lost income and cover family expenses. It differs from life insurance (which pays out on death) and critical illness cover (which pays a lump sum for specific serious illnesses). For UK families, especially self-employed individuals or those with limited savings/employer sick pay, it can be a valuable way to help maintain financial stability and reduce stress during challenging times.

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*Statutory Sick Pay (SSP) information: https://www.gov.uk/statutory-sick-pay

** Office for National Statistics (ONS) economic inactivity due to long-term sickness, December 2023: https://www.ons.gov.uk/employmentandlabourmarket/peoplenotworking/economicallyinactive/bulletins/economicallyinactivelongtermsicksummary/latest