How much income protection insurance do I need?


Knowing how much income protection you need completely depends on your personal circumstances. Aspects like how much you earn and how much of your annual income you have to spend on essential expenses which would continue, even if you were no longer able to work, are all considerations you need to take when figuring out how much income protection you need. 

In this article, we will help you calculate how much income protection insurance you need, so that you can make an informed decision on what provider and product works best for you. 

Do I need income protection insurance?

Perhaps the first question you need to answer before you wonder how much income protection cover you need is whether or not you require it in the first place. We have answered the question ‘is income protection insurance worth it?’ before, and while it is difficult to provide you with an answer that is specific to you and your needs, what we will say is that if you would be unable to cover all of your regular essential expenses through your personal savings, company sick pay or state benefits (statutory sick pay or employment and support allowance), then the answer is probably yes.

There are, of course, some industries and occupations that pose a higher risk of developing an illness or injury than others. People who work in areas such as construction, agriculture and professional sport could be more likely to receive a work-related injury, and so purchasing income protection insurance may be even more worthwhile for them.

At Wiltshire Friendly, we have been working alongside businesses and sports teams to offer bespoke coverage for businesses and professional, semi-professional and amateur athletes for years, so we are aware of those working in higher-risk careers.

So, how much income protection insurance do I need?

Now that you’ve decided that purchasing income protection insurance would be a worthwhile investment, you need to calculate how much income protection you need. This can be tricky, as it varies from person to person and depends on your personal circumstances, your annual income and your regular expenses.

Calculate your monthly expenses

The first step towards calculating how much income protection insurance you need is figuring out how much you regularly spend on your monthly essentials, such as:

 

  • Mortgage or rent

  • Bills and utilities

  • Loan or credit card payments

  • Childcare costs

  • Food shop

  • Transport

 

If you want to, you can also include the average monthly spend on leisure and other expenses.

Divide the answer by the number of earners/contributors in the household

Once you have figured out your total monthly household outgoings , you will need to split this figure between the number of people in your house that earn and contribute to these payments. This will help you to figure out how much you contribute on a monthly basis. 

If you live with your partner, but they earn more than you so contribute more, it might be a bit more difficult to work out your share of the payments. However, once you know how much you put towards the monthly essential payments, you will know how much you need to receive from your income protection insurance product to be able to cover everything.

How much income protection can I take out?

So, you know how much income protection you need, but this doesn’t necessarily mean you will receive this amount. How much income protection insurance you can take out will depend on two conditions:

 

  1. Your annual income (before tax)

  2. How much your chosen provider will insure you for

 

Income protection payments are never the full amount of your salary. Instead, providers pay out a percentage of your regular earnings - usually up to around 65%. For example, if you earn £28,000 a year before tax, and your policy insures you for 65%, you could receive £1,516 a month. 

Providers will need to be aware of any additional sources of income you have, for example a second job, benefits or shareholder dividends, as this will all go towards your total income.

How Wiltshire Friendly can help

Wiltshire Friendly is a specialist income protection provider. We provide income replacement cover to individuals, employers and amateur, semi-professional and professional sports players who have lost their income due to illness or injury preventing them from working.

To find out more please contact us today.