As financial pressures leave many households with limited room for unexpected setbacks, Gregor Sked, Senior Protection Technical Manager at Royal London, considers whether income protection should be more central to family protection planning.
The biggest threat to a family’s financial security isn’t always death or a critical illness. More often, it’s the sudden loss or disruption of the income that keeps everything running.
Yet while most families insure their homes, cars and possessions, many remain heavily exposed to a prolonged loss of earnings. At a time when many households have little financial capacity to absorb a shock, are we giving income protection the central role it deserves in family financial planning?
The reality is that many working households are operating with far less financial resilience than many might expect.
Royal London’s latest Financial Resilience Report found that the average UK adult is categorised as ‘Economically Exposed’, while more than a third of employees are considered ‘Financially Fragile’ despite being in work.
When financial buffers are thin, even a temporary interruption to earnings can quickly put pressure on household finances.
So, is it time to rethink where income protection fits in? I’d say yes, because income has always been the engine room of a family’s finances. It pays the mortgage, household bills, childcare costs, pension contributions, holidays and everything else a family is trying to build around.
Remove that income, even for a relatively short period, and the pressure on the wider financial plan can become obvious very quickly.
The income protection market continued to build momentum in 2025, with Swiss Re reporting an 11.9% increase in new sales, following 18.4% growth the previous year.
It suggests more advisers and clients are starting to recognise the value of protecting income, not just insuring against death or critical illness.
But the industry would probably accept there is still some way to go before income protection becomes a natural part of family financial planning, rather than an additional conversation that happens only when time allows.
The core purpose remains straightforward, a way to provide a replacement income when illness or incapacity prevents someone from working. But family life is rarely that straightforward.
A household’s income can come under strain even when the person insured is still physically able to do their job. One of the clearest examples is when a child becomes seriously ill.
For many households, one or both parents might have to reduce their working hours or take extended periods away from work for hospital visits and appointments. Even where the parent remains fully capable of doing their job, their ability to earn may be affected significantly.
Traditionally, we’ve often addressed this risk through children’s critical illness cover, and that remains an incredibly important conversation.
A lump sum paid on the diagnosis of a specified child critical illness can provide valuable financial flexibility precisely when families need it most.
In 2025 alone, Royal London was able to support 177 families, paying out over £3.4 million in children’s critical illness claims.
That figure’s a powerful reminder of the importance of meaningful protection for families and the real difference it can make when the unexpected happens.
Similarly, where a parent dies unexpectedly, family income benefit can play a crucial role by replacing lost household income through a regular tax-free income rather than a single lump sum.
Both solutions continue to have an important place within family protection planning.
What’s particularly interesting, however, is the growing recognition that family financial resilience can be disrupted long before a traditional protection claim arises – particularly if a child is admitted to hospital unexpectedly.
This thinking sits behind some of the latest developments in the income protection market. Enhancements such as child hospitalisation benefits and child illness support recognise that the financial impact of family events can be significant even where the policyholder themselves remains physically capable of working.
Royal London’s recent income protection enhancements, for example, include support where a child spends an extended period in hospital, alongside a child illness and loss benefit designed to recognise the potential impact on a parent’s earning ability and financial resilience.
These benefits have been introduced specifically to improve customer relevance and recognise genuine family needs beyond traditional incapacity events.
Our Financial Resilience Report highlighted that life events such as bereavement, divorce and job loss have a lasting impact on financial vulnerability, with 42% of those experiencing a recent life shock in the last two years falling into the ‘Financially Fragile’ category.
‘Financially Fragile’ households have average cash savings of just £1,136 and only £77 of discretionary income each month.
Perhaps the biggest planning lesson is that family protection shouldn’t be viewed through a single product lens. The most effective protection strategies often involve multiple solutions working together.
And, as family life becomes increasingly complex, advisers who position income protection as part of a broader family resilience conversation may find it resonates far more strongly than talking purely about insurance definitions, deferred periods or claim statistics.
Main image: family-mike-scheid-0iqkntLw93A-unsplash
