Picture this: you've got your own business and as a reward for all the hard work you've put in, you're treating the family to a week's skiing in France. On the last day you break your leg in a disastrous tumble. After the initial shock and pain have been dealt with comes the horror that you won't be able to work for many months - yet your family depends on your income to survive.

It's a sickening thought, and yet while the majority of the working population has life insurance (usually to pay off their mortgage), the issue of protecting their income seems to be largely overlooked by almost everyone who works.

In fact just 13% of the working population have some form of income protection, either through an employer's scheme or their own personal arrangement. The rest of us are keeping our fingers crossed.

What is income protection insurance?

Income protection insurance, also known as permanent health insurance (PHI), is a form of insurance plan to protect your income during periods of ill health or debilitation from an accident. Of course it isn't compulsory but anyone who is earning today needs to think about how they can best safeguard their income - whether they're self employed, contract or PAYE.

A bleak picture For the self employed:

"Just 13 per cent of the working population have income protection. The rest of us are keeping our fingers crossed."

If you're unable to work, don't count on the state providing for you. State benefits for the self-employed are very poor. For example, if you're unable to work for four or more days in a row you can claim incapacity benefit of £57.65 per week until the DSS doctor deems you're better or until retirement age. If you have a PHI policy then the DSS would reduce the amount of benefit it pays to you.

Employees:
Employees are not much better off. Many of them assume that if they're ill, their employer will provide for them. This just isn't the case - there's no legal obligation for an employer to provide sick pay. State benefits for employees are not too hot either. If you earn more than £77.00 per week you'll be entitled to statutory sick pay of £68.20 per week for up to 28 weeks in a spell, or linked spell, of sickness.

What's the cost?

The cost of PHI depends on a number of factors:

1. Age - the older you are the more expensive PHI will be.

2. Gender - PHI for women tends to be more expensive, because although women tend to live longer than men, they're also more likely to be off work due to illness.

3. Occupation - individuals with sedentary, office based jobs are likely to pay less than someone whose occupation involves a large amount of manual work or travel.

4. Deferment period - this is the term for the number of weeks you have to be off work before the plan pays out an income. The shortest deferment period is normally four weeks, but plans with this length of deferment period are expensive. A typical period is 12 weeks.

5. Termination age - this is the age at which your plan ceases. Normally this date coincides with retirement. But to cut premium costs some people choose an earlier termination date.

6. The level of benefit - this will have the biggest effect on premiums. The higher the monthly income you choose to say you'll need to live on in your sickness, the more expensive your plan will be. The maximum you can have is usually around 50 to 65% of your earnings in the last 12 months, inclusive of any state benefits.