Income protection insurance is a type of insurance you can take out to protect a portion of your income if you can’t work. For example, if you fall ill, have an accident, or become disabled, this policy can pay out a replacement income—usually until you recover, retire, or reach a set number of years.
In this article, we’ll explain what income protection (sometimes called “income protection cover” or “salary protection”) is, how it works, who it’s for, and whether it might be right for you. Let’s start with the basics.
1. Why income protection insurance is important
Most of us rely on our wages or salary to meet everyday needs—rent or mortgage, bills, food, and perhaps childcare or debt repayments. But what if you couldn’t work for some time?
UK benefits like Statutory Sick Pay (SSP), Employment and Support Allowance (ESA), or Universal Credit can help when you’re off work with illness or disability. However, these can be limited:
- SSP currently pays around £116.75 per week and lasts up to 28 weeks.
- Universal Credit and ESA depend on your personal circumstances and may take time to apply for.
Contrast that with income protection insurance, which typically:
- Pays a portion of your regular income—often up to 60–70%—tax-free.
- Starts after a short delay (like 4 weeks, 8 weeks, or longer), depending on your preference.
- Can last until you return to work or until retirement, depending on the plan.
This can give you breathing room to recover without worrying about bills.
2. How income protection insurance works
Let’s break it down simply:
- How much it pays
You choose a benefit level—usually a percentage of your salary, such as 60%. If your salary is £2,000 per month, this would pay you £1,200 monthly tax-free. - Waiting period
You also decide a waiting period (sometimes called “deferred period”)—how long after you stop working before payments begin. A longer wait often means lower premiums. - Premiums (what you pay)
You pay monthly or yearly premiums. The amount depends on factors like age, job type, income, health, smoking status, and waiting period length. - Benefit period
This defines how long the policy will pay out—for example, two years, five years, or until you reach age 65. Longer coverage usually costs more. - Conditions covered
Most plans cover illness or injury that stops you working. Some include mental health conditions. Always read the policy carefully.
3. Who should consider income protection insurance
This cover is most useful for:
- Self-employed individuals or contractors without sick pay.
- Employees without generous sick pay, where SSP isn’t enough to keep up with expenses.
- People with dependents—like children or elderly parents—who rely on their income.
- Anyone with existing debts such as a mortgage or loans.
If you have significant savings, strong sick pay at work, or few expenses, it might be less essential.
4. Types of income protection insurance
There are two main types:
a) Short-term income protection (or accident, sickness & unemployment insurance)
Covers a shorter period—often up to 12 or 24 months. It’s typically cheaper, but means you’ll need another plan if you’re off longer.
b) Long-term income protection
Pays out until you return to work or retire. Premiums are higher, but the coverage is usually more comprehensive.
5. Term life vs income protection—what’s the difference?
It’s easy to mix up:
- Life insurance pays a lump sum if you die.
- Income protection insurance pays an income if you can’t work due to illness or injury.
You can hold both—but income protection specifically helps with living costs if you’re off work.
6. How to get income protection insurance
- Shop around
Compare providers (some specialise in self-employed people, others focus on private medical features). Some sound advice can be collected on income protection insurance martin lewis forums - Think about your job and health
Higher-risk jobs or health issues can raise premiums—so be honest in your application. - Pick a waiting period and benefit level
Make sure these fit your financial buffer (e.g. savings, employer sick pay, benefits). - Check policy details
Watch for exclusions (like certain mental health claims), review conditions regularly, and check if premiums increase with age.
7. Alternatives—don’t rely on savings alone
Could savings work instead? Maybe—in the short term. But most of us don’t have enough to cover long time off work. Even building an emergency pot takes time. Income protection stands as a backup.
Plus, your savings might be better used elsewhere—like paying off debts or saving for retirement (a Pension Scheme, for instance) .
8. How it complements other support
Income protection insurance works well alongside:
- UK benefits like ESA, SSP, Universal Credit—helping to cover the gaps.
- Personal health insurance, which may cover medical treatments but not income.
- Critical Illness Cover, which pays out if you’re diagnosed with specific conditions like cancer or heart attack—but only once.
9. Real‑life example
Meet Alex, 35, freelance graphic designer:
- Self-employed—no sick pay.
- Income: £3,000/month before tax.
- Monthly expenses: ~£2,500 (rent, bills, groceries).
If Alex became ill and couldn’t work:
- Savings covered only 3–4 months.
- SSP and Universal Credit would be too little or too slow.
He took out long-term income protection with:
- 8‑week waiting period.
- Covers 60% of income—about £1,800/month.
- Covered until age 65.
If he falls ill, he’ll receive that £1,800—covering most expenses and preserving his savings.
10. Drawbacks to watch out for
- Premium cost: Not everyone can afford long-term cover.
- Policy conditions: Not all illnesses may be covered—especially some mental health or progressive conditions.
- Occasional reviews: Some plans reassess your income level during the policy term to check benefit amount.
- Tax considerations: In the UK, payouts are usually tax-free—but confirm with your policy provider.
11. Final considerations
Before taking out income protection insurance:
- Review your current safety nets—savings and employer sick pay.
- Decide how much income you need to replace.
- Choose a waiting period and coverage period that works for you.
- Compare options of life insurance and income protection
- Compare quotes, check terms, and read the fine print.
- Research income protection insurance redundancy.
- Seek financial advice, especially if your health or job is complex.
Further reading and resources
- Learn more about how to manage your finances if illness affects your income: [How to Take Control of Your Money If You Become Ill or Disabled]—helpful tips on budgeting, benefits, and protective actions
You might also find these external sites helpful:
- MoneyHelper – Income Protection Insurance — A clear government-backed guide explaining different types of income protection cover.
- Citizens Advice – Sickness benefits — Explains UK benefits like SSP, ESA, Universal Credit, and how they work with insurance.
- FCA – Scamsmart — How to check if an insurance provider is authorised and protecting consumers.
- Which? – Income Protection Insurance Review — Independent reviews comparing policies and providers.
(Real websites, replace placeholder URLs accordingly.)
Summary
Income protection insurance offers a safety net if you cannot work due to illness or injury. It helps replace a chunk of your income, covers everyday costs, and connects with other benefits and savings. Carefully choose your policy based on your personal situation, and always read the policy documents. With the right cover, you can protect your financial wellbeing—and keep your life on track if the unexpected occurs.