How much cover you need, and for how long

Sizing a policy comes down to two numbers: your committed monthly outgoings, and your pre-tax annual earnings. Everything else on this page starts from those two figures.

Your committed monthly outgoings

This is what you would still have to pay if your income stopped tomorrow. Think of the mortgage or rent, loan repayments, insurance, the bills you cannot cancel. It is not your full monthly spending, because some of that would stop the moment your income did.

Your pre-tax annual earnings

This is what you earn before tax and National Insurance are taken off. Insurers use pre-tax earnings as their starting point for deciding how much they will let you insure, so it is the figure to have in front of you.

Putting the two together

Your outgoings tell you the monthly benefit that would actually cover them. Your earnings set roughly how much cover an insurer would typically sell you. Putting the two side by side shows whether the amount you need and the amount you could buy are the same thing, or whether there is a gap between them.

An outgoings figure that is too low, or an earnings figure that is out of date, will point you to a policy that does not fit your situation, so it is worth getting both right before you speak to an insurer or a regulated adviser.

Before you weigh these two figures against the cap an insurer would apply, it helps to know how long your household could actually go without any income coming in. The guide on working out how long you could go without income walks through how your savings, your outgoings and any sick pay you are owed combine to set that length, and it is worth reading alongside the figures here.

Before deciding how much cover you need, it helps to understand your income gap first. Working through how long you could go without income shows how your savings, outgoings and any sick pay hold up before you look at what a monthly benefit should replace.

Insurers don't let you insure the whole of your income. Each one sets a ceiling on the monthly benefit it will pay, worked out as a share of your pre-tax earnings. That share commonly sits somewhere between half and seventy per cent, and it is this ceiling that decides the most cover you could actually buy.

Why the ceiling exists

The share an insurer applies varies by insurer and by occupation, so two people with the same outgoings can end up with different limits. That means the figure your outgoings point to and the figure an insurer would agree to are two separate questions, and both need answering before you know what cover is realistically on the table.

If the benefit you need sits above the cap

When your committed outgoings call for a monthly benefit higher than the cap allows, the shortfall doesn't disappear; it has to be covered some other way. For many households that means drawing on savings for part of a claim, looking again at which outgoings are truly committed, or weighing up cover for a partner or another earner if the household has one.

Working out which of these fits your situation, and how a policy should be structured around it, is a conversation for a regulated financial adviser or the insurer itself, since the right answer depends on your own finances in a way a general figure can't settle.

Before you weigh up how long a policy would keep paying, it helps to know how long you could manage without any income at all. Read the guide on working out your income gap to see how your savings, outgoings and sick pay set that figure, because that's the gap any benefit period decision is really being measured against.

The benefit period is how long a policy keeps paying out on a single claim, once it has started. It's a separate decision from the deferred period, which is how long you wait before payments begin. Two policies can trigger on the same day and still leave you in very different positions three years later, because of how long each one keeps paying.

A policy that pays for one or two years

A limited-period policy commonly pays out for one or two years on each claim, then stops, even if you're still unable to work. That's fine if whatever's kept you off work clears up within that window. It leaves you exposed if it doesn't: a back injury that doesn't heal as expected, or a condition that turns out to be longer-running than anyone first thought, can run well past the point where a limited-period policy stops paying. At that point you're back to the same position you'd have been in with no cover at all, just later.

A policy that pays to retirement age

A to-retirement policy keeps paying for as long as you remain unable to work, up to your retirement age. It covers the years a limited-period policy leaves open: a long illness that runs for a decade rather than a year still gets paid, instead of running out partway through.

What you give up for that is cost. A to-retirement policy generally costs more each month than a limited-period one for the same monthly benefit, because the insurer is carrying the risk of a much longer payout.

What this comes down to

The question isn't which structure is better in general. It's how long an illness would have to run before the limit on a limited-period policy actually bites, set against what the longer benefit period costs you every month while you're well. That trade-off is one worth working through with an insurer or a regulated financial adviser before you commit to either structure, since it shapes what you're covered for over the whole life of the policy.