The Ultimate UK Protection Insurance Guide 2026

Protection insurance is cover that pays out if you die, become seriously ill or cannot work because of illness or injury. The main types are life insurance, critical illness cover and income protection. Together they can help keep your mortgage, your bills and your family looked after if your income stops.

Most people insure their car, their phone and their holiday. Far fewer insure the thing that pays for all of it: their income. The Financial Conduct Authority’s 2026 study of the protection market found that 58% of people hold no protection products at all, and most of those have never thought about what they need (FCA Pure Protection Market Study, September 2026).

This guide explains every type of protection in plain English, shows what the state would actually pay you, and helps you work out how much cover makes sense. If you are buying a home or remortgaging, it is the other half of the conversation we have with you about your mortgage.

What is protection insurance?

Protection insurance is a group of policies that pay a lump sum or a regular income when something serious happens to you. Unlike savings or investments, protection policies have no cash-in value. You pay a monthly premium, and the policy pays out only if you claim for something it covers.

Type of cover	Pays out when	How it pays	Typical use
Level term life insurance	You die during the policy term	Fixed lump sum	Family support, interest-only mortgages
Decreasing term life insurance	You die during the policy term	Lump sum that falls over time	Repayment mortgages
Whole of life insurance	You die, whenever that is	Lump sum	Funeral costs, inheritance tax planning
Family income benefit	You die during the policy term	Monthly income for the rest of the term	Replacing your income for young families
Critical illness cover	You are diagnosed with a listed serious illness	Lump sum	Clearing debts, time off, adapting your home
Income protection	You cannot work because of illness or injury	Monthly income	Paying the mortgage and bills while you recover
Relevant life cover	A company director or employee dies	Lump sum to their family	Tax-efficient life cover paid by your company
Key person insurance	A vital person in the business dies or is seriously ill	Lump sum to the business	Protecting profits and keeping the business going
Shareholder protection	A business owner dies or is seriously ill	Lump sum	Letting the other owners buy their shares
Buildings and contents insurance	Your home or belongings are damaged or stolen	Repair or replacement costs	A condition of most mortgages

Why do you need protection insurance?

Because the safety net is thinner than most people think. If you could not work tomorrow, this is roughly what the state and your employer would provide in the 2026 to 2027 tax year:

Support	What you get	Source
Statutory Sick Pay	The lower of £123.25 a week or 80% of your normal weekly earnings, for up to 28 weeks	GOV.UK
New Style Employment and Support Allowance	£95.55 a week in the assessment phase if you are 25 or over, up to £145.90 a week in the support group	GOV.UK
Universal Credit standard allowance	£424.90 a month for a single person aged 25 or over, £666.97 for a couple	GOV.UK
Support for Mortgage Interest	A loan, not a grant, towards interest on up to £200,000 of mortgage, after 3 months on Universal Credit	GOV.UK
Bereavement Support Payment	Up to £3,500 plus 18 monthly payments of £350 for a surviving partner with children	GOV.UK

Statutory Sick Pay is now paid from the first day of sickness, a change that came in on 6 April 2026. Even so, £123.25 a week is about £534 a month. Set that against a typical mortgage payment, council tax, energy and food, and the gap is obvious. If you are self-employed, you get no sick pay at all. Company directors who pay themselves a small salary may find their sick pay is tiny too.

The same applies if you die. Bereavement Support Payment stops after 18 months. A mortgage, childcare and the weekly shop do not.

How much protection cover do you need?

Start with what would need paying, then take away what you already have. Think about:

1. Debts: your mortgage balance and any loans, cards or car finance.
2. Living costs: what your income pays for each year, and for how many years your family would need it, often until your youngest child finishes education.
3. One-off costs: a funeral, childcare and education.
4. What you already have: savings, cover through your employer (death in service) and any existing policies.

Our calculator gives you a rough starting figure.

FREE COVER CALCULATOR

How much life cover might your family need?

Add up what would need paying if you died. Leave anything that does not apply at zero. This is a rough starting point, not advice.

Mortgage balance£ Other debts (loans, cards, car finance)£ Yearly household spending your income pays for£ Years your family would need that support Other costs (funeral, childcare, education)£ Life cover and savings you already have£

Rough cover estimate

£0 Fill in the boxes above to see your estimate. Talk this figure through with an adviser →

For income protection, the starting point is different. Add up your essential monthly spending, then check how long your employer would pay you if you were off sick. That tells you how much monthly cover you need and when it should start.

What types of life insurance are there?

Life insurance pays out if you die during the policy. There are four main types, and the right one depends on what you want the money to do.

Level term life insurance

The payout stays the same throughout the policy. If you take £250,000 of cover for 25 years, your family receives £250,000 whether you die in year 2 or year 24. It suits families who want a fixed sum for living costs and for anyone with an interest-only mortgage. Read our level term life insurance guide.

Decreasing term life insurance

The payout falls over the term, roughly in line with a repayment mortgage. MoneyHelper describes it as cover where “the level of cover reduces each year. It’s designed to be used with repayment mortgages” (MoneyHelper). Because the insurer’s risk falls over time, it is usually cheaper than level term. Read our decreasing term life insurance guide.

Family income benefit

Instead of one lump sum, family income benefit pays a monthly income from the date of the claim until the end of the policy. The ABI defines it as term insurance that “pays out a regular amount of money to your family or beneficiary over a specified period of time” (ABI glossary). It replaces a salary in a way that is easy to budget with, and it is often one of the most affordable ways to protect young children. Read our family income benefit guide.

Whole of life insurance

Whole of life cover lasts for the rest of your life, so it will pay out as long as you keep paying the premiums. It is more expensive than term cover, and people often use it to pay for a funeral or to fund an inheritance tax bill. The policies we arrange are pure protection with no cash-in value. Read our whole of life insurance guide.

Single or joint life insurance?

A joint policy covers two people and usually pays out once, on the first death, then ends. Two single policies cost a little more, but each pays out separately, so the surviving partner still has cover. If you separate, single policies are also much easier to sort out. We usually compare both before you decide.

What is critical illness cover?

Critical illness cover pays a lump sum, normally tax free on a personal policy, if you are diagnosed with a serious illness listed in your policy, such as many cancers, a heart attack or a stroke. The money is yours to use however you need: clearing the mortgage, covering time off work, paying for treatment or adapting your home.

Every critical illness policy sold by insurers that follow the ABI Guide to Minimum Standards for Critical Illness Cover must cover cancer, heart attack and stroke, with consistent definitions. Beyond those, the number of conditions covered, the wording and the extra benefits vary a lot between insurers. This is where advice makes a real difference.

You can take critical illness cover on its own, or combined with life insurance so it pays out on whichever happens first. Read our critical illness cover guide.

What is income protection?

Income protection pays you a monthly income if you cannot work because of illness or injury. It keeps paying until you return to work, retire or the policy ends, depending on the plan. MoneyHelper says it “typically pays out between 50% and 65% of your income” (MoneyHelper).

Three choices shape the policy and the price:

• The waiting period (also called the deferred period). This is how long you must be off work before payments start. Common options are 4, 13 and 26 weeks or a year. Match it to your sick pay and savings.
• How long it pays. Short-term plans pay for one, two or five years per claim. Long-term plans can pay until retirement.
• The definition of incapacity. “Own occupation” pays if you cannot do your own job. “Suited occupation” and “any occupation” are stricter. Own occupation is usually the strongest.

For the self-employed and company directors, income protection is often the most important cover of all. Read our income protection guide.

Protection for homeowners and mortgage holders

Your mortgage is usually your biggest debt, so protecting it is the obvious starting point. A common set-up for a family with a repayment mortgage is:

• decreasing term life insurance to clear the mortgage if either of you dies
• family income benefit to replace lost income for the family
• income protection to keep paying the mortgage if you cannot work
• critical illness cover to clear or reduce the mortgage on a serious diagnosis.

You do not need all four. The right mix depends on your budget, your sick pay, your savings and who depends on you. We look at your protection alongside your mortgage, so the cover matches the loan we arrange. See our first-time buyer mortgage advice and remortgage advice.

Your lender will also require buildings insurance, and MoneyHelper advises having it in place from the day you exchange contracts. See our buildings and contents insurance guide.

Protection for the self-employed and company directors

If you work for yourself, there is no employer sick pay and no death in service cover. That makes protection more important, not less. It also opens up some cover that employees cannot use.

• Relevant life cover is life insurance paid for by your limited company for a director or employee. It is usually a more tax-efficient way to pay for life cover than paying personally, and the payout goes to your family through a trust. HMRC sets out the conditions in EIM15045.
• Key person insurance pays the business if someone vital to its profits dies or is seriously ill. Whether the premiums are tax deductible depends on HMRC’s rules in BIM45525.
• Shareholder protection gives the remaining owners the money to buy a deceased owner’s shares, while the family receives the agreed price for the shares in cash.

Always check the tax position with your accountant. We work alongside accountants on these cases regularly.

What affects the cost of protection insurance?

Insurers price cover on how likely they are to pay a claim and how much they might pay. The main factors are:

• Your age. The younger you are when you start, the cheaper the cover.
• Your health and family history. Insurers will ask about your medical history and may ask your GP for a report.
• Smoking and vaping. Smokers usually pay significantly more.
• Your job. Manual and higher-risk work costs more, especially for income protection.
• The amount and length of cover. More cover for longer costs more.
• The type of cover. Decreasing term is usually cheaper than level term. Critical illness and income protection cost more than life cover alone.
• Guaranteed or reviewable premiums. Guaranteed premiums stay the same for the life of the policy. Reviewable premiums can rise later.

Should your life insurance be written in trust?

In most cases, yes. Writing a policy in trust means the payout goes directly to the people you choose, usually much faster, without waiting for probate. It also normally keeps the money outside your estate for inheritance tax. MoneyHelper notes that with a trust, “the value of your policy is not considered as part of your estate” (MoneyHelper).

That matters because the inheritance tax nil-rate band is £325,000 and the residence nil-rate band is £175,000, both frozen until 5 April 2030 (GOV.UK). A large life policy paid into your estate could push it over those limits and lose 40% of the excess to tax. A trust is usually free to set up with the insurer at the time you apply. Your will matters too, so it is worth reviewing both together.

One of our clients recently took out £250,000 of level term cover to go towards her mortgage and bills, and put it in trust with her brother as trustee. You can read the full example in our level term guide.

Do protection insurers actually pay out?

Yes, in the vast majority of cases. The Association of British Insurers reports that in 2025 insurers paid 97.9% of claims on individual protection policies, a total of £5.15 billion (ABI, June 2026). Individual insurers publish similar figures. Royal London, for example, paid 98.4% of all claims in 2025 (Royal London).

When claims are declined, a common reason is that information was missing or wrong on the original application, often called non-disclosure. Answer every health and lifestyle question fully and honestly, and if you are unsure whether something matters, tell the insurer. We go through the questions with you so nothing is missed.

What are the most common protection mistakes?

1. Relying on death in service. It usually ends when you leave the job and may not be enough.
2. Insuring the mortgage but not the income. Life cover does nothing if you are off sick for a year.
3. Choosing the cheapest policy on price alone. Critical illness and income protection definitions vary a lot.
4. Not writing life cover in trust. It can delay the payout and create an inheritance tax bill.
5. Forgetting to review it. A new baby, a bigger mortgage or a pay rise can leave your cover out of date.
6. Leaving it too late. Cover gets more expensive with age and harder to get after a diagnosis.

How Option Finance helps with protection

We are mortgage and protection advisers, so we look at your cover alongside your mortgage rather than as an afterthought. Our office is on Friar Gate, so if you are local you can see our Derby life insurance broker page or meet us in person. We will:

• work out what you really need, starting from what the state and your employer would pay
• compare cover from leading UK insurers
• explain the differences in definitions, not just the price
• help you complete the application accurately
• set up trusts for your life cover where appropriate
• review your cover when your mortgage or circumstances change.

How we are paid. There is no fee for our protection advice. We are paid by commission from the insurer you choose. If we are arranging your mortgage, protection advice is included at no extra cost.

Frequently asked questions

Speak to Option Finance about protection

Tell us about your family, your mortgage and your work. We will show you what you would get if you could not work, what cover makes sense and what it would cost, with no obligation to go ahead.

Book a free initial consultation using the enquiry form below. See also our mortgage guide, self-employed mortgage advice and company director mortgage guide.