Poor health or a debilitating accident can happen to anyone. It doesn’t matter whether you have children or other dependents; if illness would mean you wouldn't be able to pay the bills, you should consider income protection insurance.

Illness insurance

If you can’t work because of illness, accident or a disability, you may be able to get state benefits or sick pay from your employer if you’re unable to work. However, these may not cover all your needs.

It’s worth checking if you could manage if you had to rely only on state benefits. Compare this amount with how much you think you would need to survive. It might be worth thinking about taking out illness insurance to boost your income.

Contractual sick pay or pension

Your employer may pay you Contractual Sick Pay so that you will get all or part of your regular salary for a set period if you can’t work.

Some firms will also pay your pension early if you have to retire early through ill-health, although the amount you get might be less than if you had worked to retirement. If you're not sure what you're entitled to from your employer if you can't work through ill-health, ask them for details.

If you're self-employed

Illness insurance is worth considering if you’re self-employed and can’t get pay from an employer or claim Statutory Sick Pay. However, some types of illness insurance won't cover you if you’re self-employed, Check policies very carefully before you take one out.

What types of accident and sickness protection are available?

You can opt for different accident and sickness insurance policies, including

Short-term

This type of policy covers you if you are not able to work for a shorter period. That usually means six to 12 months, although some policies offer cover for up to two years. Short-term policies are affordable but not as comprehensive as longer-term options.

Long-term

Long-term sickness protection covers you if you’re unable to return to work for more than a year and, in many cases, stays in place until retirement. As a result, the premiums are more expensive than with a short-term policy, but you have peace of mind that the bills will be paid no matter how long you’re off work.

Critical illness cover

Critical illness cover, also known as critical illness insurance, is a long-term insurance policy that covers serious illnesses listed within a policy. If you get one of these illnesses, a critical illness policy will pay out a tax-free, one-off payment. This can help pay for your mortgage, rent, debts, or alterations to your home, such as wheelchair access, should you need it.

Examples of critical illnesses include:

•  stroke

• heart attack

• certain types and stages of cancer

• conditions such as multiple sclerosis

Most policies will also consider permanent disabilities as a result of injury or illness.

Some policies will make a smaller payment for less severe conditions. Conversely, certain serious illnesses might not be covered, such as certain types of cancers and conditions not listed in the policy.

You might not be covered for health problems you knew you had before you took out the insurance, and this type of insurance will not pay out if you die.

Accident, Sickness and Unemployment insurance

Many accident and sickness insurance policies provide cover solely in the event of poor health. Another option is accident, sickness and unemployment cover, which also covers you if you lose your job through no fault of your own. These comprehensive policies are popular, although you can buy stand-alone redundancy insurance too.

Mortgage payment protection insurance

Your mortgage is probably your biggest monthly outgoing. If you were unable to work due to illness or redundancy, you still need to make your repayments or risk losing your home. 

Another option is to take out this type of insurance solely to cover these costs. After you have been out of work for a specified period, your insurance will pay you a set amount each month. You may be able to get cover for your bills, too, which usually means the provider will pay 125 per cent of your mortgage – a kind of halfway house to income protection insurance.

As with all types of insurance, the higher your cover, the more the premiums will cost. You will also pay more for a shorter waiting period, or a greater range of scenarios that could stop you from working. 

 As with income protection insurance, different policies cover different circumstances:

• Unemployment policies only payout if you can't work due to redundancy.

• Accident and sickness policies will cover you if you can’t work because of serious illness.

• Combined policies also exist that cover both unemployment and accident/sickness.

• Critical illness cover

• Life insurance

Income protection vs mortgage protection

Income protection is far more comprehensive than mortgage protection. It covers a portion of your salary, rather than just your monthly mortgage payments, and it usually pays you for longer than the MPPI limit of two years. Your policy may even cover you until you go back to work or retire. The trade-off, of course, is the higher cost of the premiums. But it can be invaluable for people in high-risk jobs, as this example shows.

Critical illness cover vs mortgage protection

Critical illness cover pays you a lump sum if you become seriously ill which stops you from working. It is sometimes offered alongside life insurance. 

Life insurance vs mortgage protection

If you have a joint mortgage, your lender may require you to take out life insurance. It pays out a lump sum or instalments if you die, so the person sharing the mortgage with you and other dependents can cope financially. 

Life insurance isn’t designed to replace mortgage protection insurance because it won’t cover you for unemployment or redundancy.