What income protection actually replaces

These are listed in the order worth acting on, which with protecting household income is not the order they are usually presented in.

Sick pay is shorter than people think

Occupational sick pay is generous in some employments and minimal in others, and it almost always ends. Statutory provision beyond it is typically low and time-limited.

Knowing exactly what your employer pays, and for how long, is the starting point for any protection decision. The self-employed usually have no occupational sick pay at all, which makes the deferred period a question about savings alone and brings the whole calculation forward.

Set the deferred period at the cliff edge

The deferred period is how long you must be unable to work before benefit starts. Aligning it with the end of sick pay plus available savings avoids paying for cover you do not need.

Lengthening it is the most effective way to reduce premium without reducing usefulness. Check when the benefit is actually paid as well, because some policies pay in arrears once the deferred period has ended, which puts a further month between the claim and the money.

Definitions decide claims

Own-occupation cover pays if you cannot do your own job; any-occupation is a much higher bar. Cheaper policies frequently use restrictive definitions, and comparing premiums across them is comparing different products. This is the single most important term in the policy.

Exclusions do most of the remaining work, and pre-existing conditions, mental health and back problems are the areas most commonly limited, which matters because they are also among the most common causes of long absence.

It is not critical illness cover

Critical illness pays a lump sum on diagnosis of listed conditions; income protection pays monthly while you cannot work. They solve different problems and are frequently confused at the point of sale. For replacing income over a long period, income protection is the relevant product.

The useful part is this: payment protection and accident cover sold alongside a loan are narrower again, usually shorter in term and attached to one debt rather than to your income as a whole.

Households with children need it most

Fixed costs are highest and flexibility lowest exactly when dependants are young. Both earners in a two-income household are usually worth covering, since losing either creates a gap. Employer group cover, where it exists, is the cheapest starting point and typically ends with the job.

A parent who is not earning is generally uninsurable for income and is still doing work that would have to be paid for if they could not do it, which is a gap life and critical illness cover address rather than income protection.

Adjust the size of it until it is something you would actually do tired.

What to check before buying anything

State provision for long-term illness or disability exists in many countries and differs enormously, so the size of the gap depends on entitlements worth establishing before pricing a policy. Cover already held through an employer, a union, a mortgage or a professional body is routinely forgotten, and duplicating it is a cost that buys nothing. Premiums are sold as guaranteed or reviewable, and a reviewable premium that starts lower can rise substantially over a policy intended to run for decades.

Because definitions, exclusions and deferred periods decide everything and the products are not comparable on price alone, this is a purchase where regulated advice is proportionate rather than optional.

Everything above, in order of what to do first

1. Sick pay is shorter than people think. Occupational sick pay is generous in some employments and minimal in others, and it almost always ends.
2. Set the deferred period at the cliff edge. The deferred period is how long you must be unable to work before benefit starts.
3. Definitions decide claims. Own-occupation cover pays if you cannot do your own job; any-occupation is a much higher bar.
4. It is not critical illness cover. Critical illness pays a lump sum on diagnosis of listed conditions; income protection pays monthly while you cannot work.
5. Households with children need it most. Fixed costs are highest and flexibility lowest exactly when dependants are young.
6. What to check before buying anything. State provision for long-term illness or disability exists in many countries and differs enormously, so the size of the gap depends on entitlements worth establishing before pricing a policy.

The takeaway

Find out when your sick pay stops. Set the deferred period there.

Small and repeatable beats ambitious and abandoned, almost every time.