Understanding protection insurance Covering your income

Protection insurance is a sensible way to safeguard your income

If you were off work for any length of time because of an accident or sickness, or if you were made redundant, how would you pay the mortgage or the rent? Not to mention meeting the household bill payments and feeding the kids?

We're very good at protecting the things we own, such as cars and computers, but not so good at protecting the really important things in life, like ourselves. We are also pretty good at being sold fairly useless products that either don't pay out when we need them, or give us such a limited amount of protection that they're hardly worth having. 

There are currently 2.2 million people claiming incapacity benefit (the current state benefit paid to those off work for more than 28 weeks). As of April, people on this benefit receive about £63 a week. Would this be enough to cover your outgoings? If not, you need to have some form of protection insurance in place. 

In the current economic climate, protection insurance is no longer a luxury. However, with money tight, the last thing you can afford to do is pay out for insurance that won't do what it's supposed to. 

Bewildering choice

There is a bewildering range of protection insurance policies on offer, all of which give you very different levels of cover. So which one do you choose? 

There are four main types of protection insurance, but here at Which? we think an Income Protection (IP) policy should be the first choice for most people. We have been saying this for many years. However, despite being one of the best value for money, comprehensive and flexible insurance products around, it's one of the least sold. 

It's important to be clued up on the type of cover you need, because you can't rely on advisers to sell you the right policy. If you're after a solution at a glance, take a look at the table on page five of this report, Types of protection insurance. It gives you a rundown of the different types of policies as well as their pros and cons.

An estimated 1.7 million working people have access to a Group IP policy and about 2 million have an individual IP policy. This means that fewer than 4 million of the 29 million working people in the UK have adequate protection if they can't work because of illness or accident. 

Changes on the way

Before you decide on the insurance cover you need, you should check what you'll receive from the state if you are unable to work because of sickness, accident or disability. From October, incapacity benefit disappears altogether and is replaced by a new state benefit called Employment Support Allowance.

See our page on State benefits for further information.

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