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Find a policy that could pay out if you find yourself unable to work

Income protection insurance is designed to make sure you get a regular income while you look to return to work or until you reach retirement age
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Last updated
December 8th, 2023

What is income protection insurance?

Income protection insurance covers you if you can't work because of illness or injury. A short-term version of income protection, sometimes called unemployment insurance, will cover involuntary redundancy. Longer-term policies tend to exclude unemployment. 

You can think of income protection as a kind of salary protection insurance to make sure you can receive a regular income until you retire or can return to work.

It exists to cover your outgoings, including bills, groceries and Council Tax, through regular monthly payments that can be either fixed or pegged to inflation. In this way, it is different from critical illness cover, which pays out a lump sum if you develop a life-threatening illness.

 Here’s more about how income protection insurance works.

Income protection cover is different from critical illness cover.”

Do I need income protection insurance?

Whether you’ll need income protection insurance depends on your situation. It’s a good idea to work out your average monthly expenses and think about how you’d cover them if you stopped earning. If you couldn’t afford to pay your bills and other regular outgoings, it might be worth considering an income protection insurance policy. Don’t forget to factor in one-off bills, such as home or car insurance and quarterly utility bills.

Income protection could be extremely helpful if you’re someone who has a family to support, or financial commitments that must be met. Even if you don’t have a family, you would still need to find a way to pay your bills if you lost your income. If something happens that leaves you out of work, your savings could disappear very quickly.

But income protection insurance isn’t always required. Reasons you may not need such insurance include:

  • Having an excellent employee benefits package that means you’d continue receiving your income for a sufficient time

  • Being close to retirement and able to retire early

  • Having family that could support you

  • Eligibility for government benefits that would cover all your financial commitments

Here’s more information on how to decide if you need income protection cover.

How to choose the best income protection insurance

It’s important that you find the right cover for your needs, so here are three things to consider during the decision-making process:

Work out what cover you need

Most insurers let you specify an amount or choose a percentage of your existing annual income, for example 65% of your yearly salary. To decide how much cover you might need, create an audit of your outgoings.

Read the small print

As with all insurance, it’s important to check the terms and conditions of each policy to make sure you fully understand what the cover includes. Check if any excess is payable too, and make sure you are comfortable with the costs involved.

Compare quotes

Once you have a good understanding of what insurance you need, compare quotes from a variety of providers to get the best price. Remember, a cheaper cost isn’t always worth it, as it might come with less cover.

Types of income protection insurance and policies available

Short-term income protection

Short-term income protection insurance ensures you receive a regular payment in place of your wages in the event of illness, injury or involuntary redundancy (it doesn’t cover voluntary redundancy). With short-term income protection insurance, your regular pay outs are normally limited to a set time period – often one or two years.

Some short-term policies pay out if you can’t perform aspects of your role – these are called “own occupation” policies. There are also “suited tasks” policies, which offer more limited protection – these won’t pay out if your employer offers you a different role at work.

Long-term income protection

With long-term income protection insurance providers will usually cover you until you return to work, retire or until the income protection cover ends. These policies usually offer a minimum of five years of cover. This type of cover is for more serious situations that could mean you’re unable to work for a much longer period of time.

Permanent health insurance

Permanent health insurance covers you for a percentage of your income if you have an accident or illness that leaves you unable to work. It’s a long-term insurance and may cover you until you reach retirement age.

Accident and sickness cover

Accident and sickness cover pays out until you can return to work, usually for one or two years.

Unemployment cover

Unemployment cover pays out a replacement income if you lose your job. Payments are deferred so this won’t be instant, and typically start after three months.

Accident, sickness and unemployment cover

This type of cover pays out if you suffer illness, an accident or job loss.

Guaranteed policies

Guaranteed policies come with fixed monthly premiums, so you know exactly what you must pay each month for your income protection cover.

Reviewable policies

Reviewable policies let you change your level of income protection insurance after a set term.

Age-related policies

Age-related policies with these premiums increase as you get older. However, your occupation or lifestyle has no effect on your premium.

Types of income protection insurance and policies available

Short-term income protection

Short-term income protection insurance ensures you receive a regular payment in place of your wages in the event of illness, injury or involuntary redundancy (it doesn’t cover voluntary redundancy). With short-term income protection insurance, your regular pay outs are normally limited to a set time period – often one or two years.

Some short-term policies pay out if you can’t perform aspects of your role – these are called “own occupation” policies. There are also “suited tasks” policies, which offer more limited protection – these won’t pay out if your employer offers you a different role at work.

Long-term income protection

With long-term income protection insurance providers will usually cover you until you return to work, retire or until the income protection cover ends. These policies usually offer a minimum of five years of cover. This type of cover is for more serious situations that could mean you’re unable to work for a much longer period of time.

Permanent health insurance

Permanent health insurance covers you for a percentage of your income if you have an accident or illness that leaves you unable to work. It’s a long-term insurance and may cover you until you reach retirement age.

Accident and sickness cover

Accident and sickness cover pays out until you can return to work, usually for one or two years.

Unemployment cover

Unemployment cover pays out a replacement income if you lose your job. Payments are deferred so this won’t be instant, and typically start after three months.

Accident, sickness and unemployment cover

This type of cover pays out if you suffer illness, an accident or job loss.

Guaranteed policies

Guaranteed policies come with fixed monthly premiums, so you know exactly what you must pay each month for your income protection cover.

Reviewable policies

Reviewable policies let you change your level of income protection insurance after a set term.

Age-related policies

Age-related policies with these premiums increase as you get older. However, your occupation or lifestyle has no effect on your premium.

What information do I have to share?

When you apply for an income protection plan, make sure you share accurate information about yourself - for example, don’t say that you’ve never smoked if you have. If you make false statements and are found out, you may invalidate your income protection cover, meaning you won’t receive the payments you need. 

You might be asked to share the following information about yourself:

  • Name

  • Age

  • Address

  • Employment information

  • Status: employed or self-employed

  • Lifestyle (such as whether you smoke)

  • Current health

  • Type of insurance you want 

  • Amount of cover required 

  • Desired length of excess period

How much does income protection cover cost?

It can cost between £6 and £50 a month. Factors that impact the price of your policy include your age and health, the length of your policy and the level of maximum cover. 

Premiums rise as you get older, or if you want cover for a longer period or a wider range of illnesses and eventualities.

Some policies cover illness and injury, while others add protection against unemployment too.” 

FAQs

Can I get income protection if I’m self-employed?

Yes, but you will need to provide a year's audited accounts to prove your income when you apply.

How long does an income protection policy last?

Most insurers offer cover up until you retire, but others specialise in shorter-term cover for 12 or 24 months.

Will I be able to make a claim as soon as I’m off work?

No. You’re usually not covered for the initial period that you’re absent from work. Most policies stipulate that you have to be off for a full 30 days before you can start claiming. Others allow you to set an “excess period” at the time of taking out your policy, so you could start receiving payments when your sick pay ends. The longer the deferment period, the lower your premiums will be.

Does it pay out if I lose my job?

You can get cover for redundancy, but you will not get a payout if you get fired. Find out more about income protection here.

Can I cover 100% of my income?

Insurers usually set a maximum amount of, say, 80%. It’s possible to get a policy that would pay out 100% of your income. But such a policy would be expensive, not least as income protection payments are tax-free. This means the amount you receive is actually more than you would in your pay packet.

Does income protection payout if I die?

Income protection doesn’t payout if you die. You should look for a life insurance policy to provide for beneficiaries should you die. Income protection solely covers a proportion of your lost income for the duration of your policy.

Explore our income protection insurance guides

Find out more about how income protection insurance works and whether it's right for you
What is income protection insurance?
What is income protection insurance?
Should you get income protection?
Should you get income protection?
How to claim on income protection
How to claim on income protection

About the author

Lucinda O'Brien
Lucinda O'Brien has spent the past 10 years writing and editing content for regional and national titles. She applies her industry knowledge to ensure readers can make confident financial decisions.

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