Picture this: you’re running a small business or working as a contractor, feeling good about the life you’ve built. Then, out of nowhere, you’re struck by illness or suffer an injury. Suddenly, the steady income you depend on disappears. It’s a scary thought, but it’s not an uncommon one. In fact, nearly 1 in 5 men and 1 in 6 women will experience a long-term illness at some point in their lives. If you’re self-employed or don’t have access to sick pay, the question becomes—what would you do?

This is where Income Protection Insurance steps in as a financial lifeline. While you’re busy focusing on your business or career, this insurance can quietly safeguard your financial future, ensuring that your income continues, even if you’re unable to work.

The Day Everything Changed

Let’s meet John, a 38-year-old freelance IT Consultant. After years of hustling to build his reputation, he finally reached a place where he felt financially comfortable. He even managed to save a little bit each month. But then John was diagnosed with a chronic illness that left him unable to work for months. With no employer-provided sick pay, his once-steady income quickly dried up.

The rent notices piled up, the utilities kept coming, and soon, the anxiety of not knowing how to pay next month’s bills started to weigh heavily. “What if I can’t work for a year?” he wondered. For John, that period became a time of immense stress—not just because of his health, but because of the financial uncertainty.

Had John invested in income protection insurance, his story might have looked different. He could have received a monthly income while he was recovering, offering him the peace of mind that his financial obligations would be met. Instead of scrambling to pay bills, he could have focused on what really mattered—his health.

Why Should You Consider Income Protection?

Stories like John’s are all too common. According to Aviva, nearly one in three adults in the UK have taken time off work due to ill health or the loss of a partner. Of those, over 77% saw their finances take a hit. If you’re self-employed or own a business, losing your income could happen faster than you think.

Let’s face it—life insurance tends to be the go-to product for most people. But the reality is, during your working years, you’re far more likely to be impacted by illness or injury than death. Income protection insurance helps bridge this gap, covering not just specific critical illnesses but any condition that leaves you unable to do your job.

6 Powerful Reasons to Choose Income Protection

1. Illness Is Your Biggest Risk
   While many prioritise life insurance, the risk of falling ill is much greater during your working years. Income protection prepares you for this very real possibility.
2. Covers Any Condition
   Unlike critical illness policies, which only pay out for pre-listed severe conditions, income protection offers more comprehensive coverage. If you can’t work, it pays out—simple as that.
3. Ongoing Payments, Not Just a Lump Sum
   Instead of a one-time payout, income protection provides a steady monthly income for as long as you’re unable to work, making it easier to manage ongoing expenses like rent, mortgages, or childcare.
4. Government Support Falls Short
   Statutory Sick Pay offers a mere £109.40 per week for 28 weeks—if you’re employed. If you’re self-employed, you’re on your own. Income protection helps fill that gap.
5. Protects Your Savings
   Even if you’ve built a financial cushion, relying on it during a prolonged illness can deplete it quickly. Income protection helps ensure your savings stay intact.
6. It’s Surprisingly Affordable
   Many people assume this type of insurance is costly, but policies are highly customisable. Your Broadbench financial adviser can help tailor a plan that fits your budget.

What to Consider When Choosing a Policy

When selecting a policy, it’s important to understand the key features that impact both coverage and cost:

• Premiums: Choose between guaranteed premiums that stay the same throughout the policy or age-costed premiums, which start lower but rise as you age.
• Claim Period: Some policies will pay out until retirement, while others might cover a set period like two or five years—shorter periods mean lower premiums.
• Waiting Period: This is the time between when you stop working and when the payments begin. A longer waiting period typically results in lower premiums.
• Occupation Type: The most comprehensive coverage is for “own occupation,” meaning if you can’t do your specific job, you’ll be covered, but this is also more expensive.
• Increasing Cover: You can opt for inflation-linked increases to ensure your payouts keep pace with the rising cost of living.

How Much Cover Do You Need?

The right amount of coverage depends on your monthly expenses. Most policies replace 50-70% of your pre-tax income, including salary and dividends. For many, this is enough to cover essential bills while still keeping premiums affordable. And if you’re one of the lucky few with a significant savings cushion, you might not need full coverage, but income protection still provides invaluable peace of mind.

The good news? The odds of your claim being approved are high—Exeter reported a 92% claims payout rate in 2022, with £9.9 million paid out to policyholders.

Tax Efficiency and Financial Flexibility

Another major benefit is the tax efficiency of income protection insurance. Payouts are generally tax-free if you’re paying the premiums yourself. However, if your business covers the cost, any payouts may be subject to tax, so it’s wise to consult a financial adviser to explore your options.

Income Protection vs. Critical Illness Insurance

Many people confuse income protection with critical illness insurance. While both are valuable, they serve different purposes. Critical illness insurance offers a lump sum payout for specific severe conditions, whereas income protection provides ongoing financial support during your recovery. Both types of insurance can complement each other as part of a well-rounded financial plan.

The Bottom Line

For business owners, contractors, and the self-employed, income protection insurance isn’t just another product—it’s a financial safety net. Without the luxury of employer-provided sick pay, it’s one of the most crucial investments you can make in securing your financial future. It’s affordable, flexible, and offers the peace of mind to weather any storm.

Take control of your financial stability and protect yourself from the unexpected. You’ll be thankful you did.

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