What is it?
An insurance policy that provides you with a replacement income if you are unable to work due to sickness or injury.  

Why do you need it?
Your biggest asset is your ability to generate an income.  If you earn £25,000 per annum and work for 40 years, that is an asset of £1m (which is likely to be far in excess of the value of your home or anything else you own).

If you are unable to work for an extended period due to ill health, the maximum benefit available under the Employment & Support Allowance (this replaced Incapacity Benefit in October 2008) would be £89.50 per week* (the Government estimates that only 10% of claimants would be eligible to receive this much)

If you would be unable to survive on this amount, you may be able to claim means-tested Employment & Support Allowance which could provide a maximum benefit of £142.10 per week.  This compares to the median average income of £479 per week**

* source - The Income Protection Task Force (a not-for-profit organization set up to increase awareness of the impact of illness and injury)

** source – The Office of National Statistics 2008

How does it work?
The plan would pay a monthly income if you are unable to work until such time as:
You are well enough to return to work; or

You reach the end of the plan (this is usually your retirement age or the date that your mortgage is due to be repaid); or

You die

Options
You can maintain the purchasing power of the benefit under the plan by linking it to increases in inflation

The plan can be arranged to start providing an income from the time when any sick pay entitlement from your employer comes to an end

As your circumstances change, you can amend the amount of cover required under the plan (if for example your salary changes)