Income Protection: Self-Insure When Your Pay and Reserves Already Cover You

At £2,000 per month, three months without any replacement pay consumes £6,000; six uses £12,000; twelve uses £24,000. These are arithmetic scenarios, not observed household spending, investment returns or guaranteed claim amounts. Cash interest and inflation are excluded. If a partner continues earning £1,000 a month towards those essentials, the net gap halves: confirm that contribution is actually dependable before subtracting it. See our emergency-fund guide for why cash needs to be accessible.

On 27 September 2026 the Bank of England listed Bank Rate at 3.75%. That is a policy rate, not the interest payable on your particular savings account. Check your own account rate rather than treating savings interest as insurance income.

Ask payroll for the exact end date of full and half pay and HR for the group-policy wording. The GOV.UK SSP guidance says the statutory amount is capped at £123.25 per week or 80% of normal weekly earnings if lower, for up to 28 weeks, for eligible people. That is a poor substitute for a professional salary, but contractual sick pay can be different. Self-employed workers should not assume SSP eligibility.

Next map the gap after employer cover and partner earnings, not gross annual pay. If months one to six are already funded and liquid reserves cover another year at net spending, a short-wait private policy buys overlapping months. Ask about a longer deferral and smaller benefit before deciding a policy is worthwhile. Our income protection explainer describes the basic terms.

Legal & General’s Income Protection Benefit offers waits of 4, 8, 13, 26 or 52 weeks, with payouts monthly in arrears after an accepted claim. Its maximum benefit uses income near the time of claim, not the income on application. It excludes unemployment. Without a personal, underwritten quote there is no honest premium break-even to print: age, occupation, health, benefit term and waiting period all change the price. Compare an actual quoted annual premium with the precise uncovered risk, and revisit when the employer scheme or household finances change.

The ABI groups income protection with other protection insurance; that label does not mean every contract offers the same coverage. Read the occupational incapacity definition, exclusions and how benefits interact with other payments. Paying for two policies is not necessarily double payout.

A second salary is useful until a shared shock affects both earners. Put the cash runway through two versions: one with your partner’s dependable net contribution, another with no contribution at all. At £2,000 essentials and £24,000 cash, the no-income case lasts twelve months before other costs; unexpected medical travel or a mortgage reset would shorten it. Never call an ISA invested in shares “available cash” at full market value on the day you need it. If selling it after a fall would damage your retirement plan, hold a separate accessible buffer or price up long-tail cover instead.

Cash self-insurance has a hard ceiling. Twelve months at £2,000 is £24,000 with no other income; a multi-year illness can eat far more, and a simultaneous job loss in the family erases the assumed second wage. If the reserves are locked in a pension or exposed to stock-market falls, they are not an emergency runway. The Guardian’s case for buying long-tail cover is stronger where dependants rely on one wage or the employer plan ends quickly.

I would change my position when the cash gap plus the realistic duration of illness outstrips available reserves, not when an insurer’s advert says that everyone needs a policy. Check what happens to group cover if you change jobs. Preserve a readily available cash buffer even if you do buy cover.

Self-insurance is not a once-and-for-all identity. A new employer can shorten sick pay, while a new mortgage increases the fixed bill that savings must carry. Recalculate essential expenses and dependable monthly income when either changes. Rebuild cash spent on a previous illness before deciding the household still has a twelve-month cushion. Keep the calculation in months of net uncovered spending, not a round savings target, and compare the remainder with a quoted long-wait policy.