Protecting your family: life cover, income protection and critical illness
Protection policies pay out when a death or serious illness would otherwise leave a family short of money. The right mix depends on your debts, your income, your children's ages and what your employer already provides.
By Vince De Stefano, Head of Financial Services
Updated 26 October 2026
4 min read
Key takeaways
- Life cover pays a lump sum or a monthly income if you die during the policy term.
- Income protection replaces part of your earnings if illness or injury stops you working.
- Critical illness cover pays a lump sum on diagnosis of a specified serious condition.
- Writing a life policy in trust usually keeps the payout outside your estate and gets it to your family faster.
Life cover
- Level term pays a fixed lump sum if you die within the term. It suits family needs such as replacing income until the children are grown up.
- Decreasing term pays a sum that falls over time, usually in line with a repayment mortgage. It costs less than level cover.
- Family income benefit pays a monthly income from the date of death to the end of the term, which is often easier for a family to manage than a large lump sum.
- Whole of life pays out whenever you die. It costs more and is mainly used to fund an inheritance tax bill. See inheritance tax planning.
Income protection
Income protection pays a monthly benefit, typically 50% to 65% of your earnings, if you cannot work because of illness or injury. Payments start after a deferred period you choose, often matched to how long your employer pays sick pay, and continue until you return to work, the policy ends or you retire. Benefits from a personal policy are free of income tax.
Check how the policy defines being unable to work. An "own occupation" definition pays if you cannot do your own job, which is the strongest cover.
Talk to us about your position
Book a no-obligation consultation with the Totus One team.
Critical illness cover
Critical illness cover pays a tax-free lump sum if you are diagnosed with one of the conditions listed in the policy, such as certain cancers, heart attack or stroke, and meet its definition. The money can clear a mortgage, pay for treatment or adaptations, or let a partner take time off work. Definitions vary between insurers, so compare the wording as well as the price.
How much cover you need
Work out what your family would need if your income stopped: the mortgage and other debts, a sum for living costs until the youngest child is independent, and costs such as university fees or childcare. Then deduct what is already in place: death-in-service benefit from your employer, any existing policies and savings. Death-in-service usually ends when you leave the job, so it should not be the only cover.
Writing policies in trust
A life policy that is not in trust pays out to your estate. The payout can then be included in the estate for inheritance tax and cannot be released until probate is granted, which can take months. A policy written in trust pays the trustees directly, usually within weeks of the claim, and the money is normally outside your estate.
Most insurers provide trust forms free of charge. Choose trustees you trust to act quickly, and review them when your circumstances change. Our trusts guide explains the main types.
A protection plan works alongside your will, the guardians you appoint for your children and your lasting powers of attorney. We review all of them together. See making a will.
Frequently asked questions
How much life insurance do I need?
Enough to clear your debts and replace your income until your children are independent, less any cover you already have through work and existing policies.
Is income protection worth it if my employer pays sick pay?
Employer sick pay is often limited to a few months. Income protection can start when it ends and continue until you return to work or retire.
Is a life insurance payout taxed?
There is no income tax on it. If the policy is not written in trust, the payout can form part of your estate for inheritance tax.
Why should a life policy be written in trust?
It usually keeps the payout outside your estate and lets the trustees receive the money without waiting for probate.
Sources & further reading
The value of investments and the income from them can fall as well as rise, and you may get back less than you invest. Tax treatment depends on your circumstances and may change.
This article is general information, not advice. Tax, financial and legal rules change and their effect depends on your circumstances. Check the current position and take professional advice before acting. Last reviewed 26 October 2026. Totus One Limited (company no. 16855798).
An independent financial planner advising individuals and families on pensions, investments, protection and inheritance.
The Totus One brief
One email a month on tax, wealth and law for private clients.
By subscribing you agree to our privacy notice.