If you get sick or injured and are unable to work, income protection pays you part of your monthly income. Income protection payouts are tax-free and help you to protect your finances whilst you recover. As the payouts are tax-free, they should cover most of your salary that you stated on the application, after all deductions, such as tax and National Insurance.
Income protection cover works on a term basis. This means that you choose the term that you would like the policy to run for at outset, for example, until the age that you expect to retire. If you are unable to work due to sickness or injury, the policy will pay out until you either get better and can return to work, or until the end of the payment period, which could be the end of the term of the policy.
However, income protection does not provide cover for if you are made redundant or are dismissed.
Do you need income protection insurance?
You should consider income protection if:
You would be unable to cover your outgoings if you get sick
You would be unable to cover your outgoings with government benefits (the Employment and Support Allowance pays between £77 and £117.60 per week for an over 25)1
You are not entitled to sick pay at work
You are the only income in the household
You are the main earner in the household
1turn2us.org.uk. Employment and Support Allowance (ESA) – How much Employment and Support Allowance (ESA) will I get?