How much income protection do you need?

The right level of income protection depends on your personal circumstances, lifestyle, and how your business operates. Start by assessing your monthly outgoings — such as mortgage or rent, household bills, food, loan repayments, and other essential expenses. If you run a limited company, include fixed business costs like software subscriptions, insurance, and accounting fees. The goal is to replace enough income to maintain your standard of living and keep your business stable while you recover.

Executive income protection policies can typically cover up to around 70–80% of your gross income, including salary and dividends (learn more about tax treatment for directors). Personal income protection policies usually cover around 60–65% of your regular income, with benefits paid tax-free. If your outgoings are high or most of your income comes from dividends, it’s often worth choosing the maximum level available to avoid a shortfall during long-term absence.

Factors to consider

Deferred period: This is the waiting period before payments start — usually between 1 week and 12 months. A longer deferred period will lower your premium, but you’ll need to rely on savings or company reserves during that time. Directors often match the deferred period to how long the business could continue paying them full or partial salary if they were off sick. See short-term vs long-term income protection for how benefit length affects cost.
Benefit duration: Short-term income protection (typically 12 or 24 months) can be useful for covering recovery from temporary conditions, but it may not be sufficient if you’re permanently unable to work. Long-term policies pay until retirement or a fixed age, offering stronger peace of mind but at a higher cost.
Other income sources: Consider how long your savings, investments, or other income streams could sustain you. If you have significant reserves or a partner’s income to rely on, you may be comfortable with a lower benefit level or longer deferred period.
Inflation protection: Opting for indexation ensures your monthly benefit rises each year in line with inflation (Office for National Statistics – inflation data). This prevents your cover from losing value over time — especially important for long-term policies where claims could last several years.
Existing cover: Some employers provide group income protection as part of a benefits package, which could reduce the amount you need personally. Directors should also check whether their company has relevant life cover or key person insurance already in place, as this can complement income protection.

Ultimately, the goal is to strike a balance between affordability and adequate protection. Taking out too little cover may leave you underinsured, but over-insuring can unnecessarily raise your premiums. A regulated financial adviser can help you model realistic scenarios — including how long you could manage without income — and recommend the right balance of benefit level, deferred period, and cost for your circumstances. If you’d like to compare options directly, you can get a quote online.