Planning for the worst-case scenario

While we can't protect ourselves and our loved ones against all of life's uncertainties, there's a wide range of insurance policies that can help you cope financially if you are unable to work through serious illness, injury or accident.

Our ten-minute tutor will guide you through the main options for protecting your income.

Before you begin: Rummage through your paperwork
Start with a quick check of what you've got already to cover a rainy day. You may already have some cover you've forgotten about, such as mortgage payment protection insurance (MPPI) that you took out when you arranged your mortgage.

Look at your (and your partner's) earning capacity, and check with your employer(s) what protection they would offer in the event of illness, especially long-term illness. Tot up any savings you have. You will then have an idea of how much money you'd need if you weren't able to earn for a time.

Step 1: Look at income protection insurance
The main type of insurance to cover your income if you are unable to work through sickness, accident or injury is income protection insurance, also known as permanent health insurance (PHI).

This pays out a regular tax-free income (normally 50-65% of your earnings). Payments usually start after a deferred period of between four weeks and a year, during which time you'll need to rely on other resources. The longer your deferred period, the lower your premiums (regular payments).

Income protection can be expensive. The premiums you pay will depend on your age, the type of work you do (low risk or high risk of injury), the amount of cover and the deferred period.

Step 2: Look at covering sudden ill health
Critical illness insurance pays out a single tax-free lump sum if you're diagnosed with one of a defined list of serious or life-threatening conditions. Policies vary but typically the list will include cancer, heart disease, stroke, multiple sclerosis, and total and permanent disability.

This cash can help ease financial worries for you and your family while you are being treated, which, in the event of a serious illness, can be a lengthy process. You could use the cash to pay off a large debt such as your mortgage.

The younger you are, the cheaper this cover costs, because the less likely you are to develop a serious illness.

It's best to see this policy as an addition to permanent health insurance (PHI)/ income protection insurance. It doesn't pay out for accident or injury or many common problems such as back trouble or stress, only serious illness. Always make sure you know which illnesses are covered and which ones aren't.

Step 3: Look at covering your mortgage
If you simply want to be able to pay your mortgage if the worst happens, you can take out mortgage payment protection insurance (MPPI).

MPPI - also known as accident, sickness and unemployment insurance (ASU) - offers peace of mind by paying off your mortgage if you are unable to work following an accident, sickness or unemployment.

It usually only pays for 12 months (occasionally 24 months). Rates vary enormously, so if you want the cover always shop around and don't just opt for the policy your mortgage lender offers.

Always check the exclusions (the things that aren't covered) when comparing policies. Compare prices too with permanent health insurance (PHI), which may offer a better all-round deal.

Step 4: Look at debt protection Payment protection insurance is designed to cover the cost of personal loan repayments or minimum monthly credit card payments if you are ill and unable to work, or are made redundant.

If your debts are small or you could cover repayments using savings or help from relatives, this might be an unnecessarily expensive option.

Step 5: Look hard at accident insurance You get often get personal accident insurance offered free to encourage you to buy other financial products. So don't be surprised that what's covered may be limited. Some simply pay a modest lump sum if you suffer an injury specified in the policy such as the loss of an eye or a limb as the result of an accident. Look for what's not covered.

Step 6: Do you want a monthly income?
Family income benefit policies are a type of term life insurance, which pay regular amounts to your dependants in the event of your death. Income can be paid monthly, quarterly or yearly, depending on the policy.

Step 7: Weigh up the options
Replacing income can be an expensive business, so think carefully about which type of insurance best suits your financial situation. If you're not sure then seek independent financial advice before signing on the dotted line.