What is Income Protection?

Income protection insurance provides a regular income if you’re unable to work due to illness or injury. It replaces a portion of your earnings, typically 50–70%, until you can return to work or until the policy’s benefit term ends. This crucial coverage helps you maintain your lifestyle and cover essential expenses during extended periods of absence, offering significant peace of mind and financial security.

Key Benefits:

• Covers a broad range of conditions, including physical illnesses, injuries, and mental health issues.
• Offers both long-term and short-term coverage options.
• Provides monthly, typically tax-free, payouts.
• Cover available for multiple claims over your working life.
• Can be customized to align with your budget and existing employment sick pay arrangements.

How Does Income Protection Work?

Income protection pays a monthly benefit after a waiting period, known as the deferred period, which can be 4, 8, 13, 26 or 52 weeks. Having a longer deferred period generally reduces the cost of cover, but you do need to make sure you have sufficient short-term funds, or workplace sick pay. Income protection payments continue for the duration of your valid claim—either until you return to work or the benefit term expires, which could be retirement age depending on the type of policy selected, or a more limited policy could pay out for a fixed period of 1 to 5 years.

Example:

Imagine you earn £3,000 per month and choose a benefit equal to 60% of your income with a 13-week deferred period. If you’re unable to work due to illness or injury and remain off for more than 13 weeks, your insurer will pay you £1,800 per month until you return to work or the policy ends.

Important Considerations:

• Benefit Level: Usually 50–70% of your income. The higher the amount of cover you have the higher the monthly cost. It is a good idea to assess your income and expenses and work out how much you would need in these circumstances.

• Deferred Period: The waiting time before payments begin. Good practice would be to review any sick pay arrangements and accessible cash reserves. 

• Benefit Term: How long payments continue (e.g., 1 year, 2 years, or until retirement). The best policy will pay until retirement and we will always quote this option as the best option. For more budget conscious clients, we can consider options that pay for a limited period of time per claim.

• Premium Type: Guaranteed, reviewable, or age-banded. A guaranteed period gives you the assurance of knowing the cost of the policy longer-term, and is generally a good idea as insurance does tend to increase with age. However, reviewable or age banded premiums can start at a more cost effective rate, so it is worthwhile considering all options from leading providers. 

• Occupation Definition: ‘Own occupation’ versus ‘any occupation’. Own occupation will pay if you cannot perform your own occupation, whereas any occupation will only pay if you cannot perform any kind of work. Own occupation is generally preferable where possible.  

Why Income Protection is More Important Than Ever

As of February 2025, over 20% of UK workers admitted they couldn’t cover basic expenses if their income stopped for just one month. Rising living costs, dwindling savings, and cost cutting changes to employer sick pay have made households increasingly financially vulnerable.

Real-World Risks:

• Statutory Sick Pay (SSP) is only £116.75 per week (2025), increasing to £118.75 per week from 6 April 2025.
• Self-employed individuals are not eligible for SSP.
• Long-term illnesses (e.g., cancer, mental health, musculoskeletal conditions) can result in months or years away from work.

Who Needs Income Protection?

• Individuals with mortgages or dependents.
• Many employees do not have sufficient sick pay or work related benefits.
• Self-employed or freelance workers.
• Professionals without long-term employer sick pay.
• High earners rely on their monthly income.
• Think about the long-term earnings that could be potentially lost from those reliant on their own labour for income, which is the majority of people, even many business owners as their business success often depends on their own input.

Is Income Protection Right for You?

Ask yourself:

• Could I cover my rent/mortgage, bills, and living expenses without income for the longer-term. Some people could only survive financially for a few months, most would only get by for a year before there is a detrimental impact.
• Do I have employer sick pay that lasts beyond a few weeks? It is important to check.
• Would losing my income significantly impact my family wellbeing.

If you answered ‘no’ or ‘not sure’ to any of these, income protection is worth exploring.

Common Misconceptions:

• ‘It’s only for dangerous jobs.’ Most claims are for illness, not injury.
• ‘I’ll rely on savings.’ Few people have enough savings for a 6–12 month income gap.
• ‘My employer covers me.’ Many employer schemes last only 3–6 months.

Financial Reality:

Even a modest monthly benefit, such as £1,500, can cover essential costs and prevent you from depleting savings, accumulating debt, or forcing you to sell or lose your mortgaged home.

Types of Income Protection Policies

1. Short-Term Income Protection: Pays for a maximum of 1–2 years per claim; lower premiums.
2. Long-Term Income Protection: Pays until you return to work or reach retirement; higher premiums but more comprehensive.
3. Guaranteed vs. Reviewable Premiums: Guaranteed premiums are fixed; reviewable premiums may change.
4. Age-Banded Premiums: Lower initially, increasing annually with age.
5. Indexed Benefit Option: Benefit increases with inflation to maintain its purchasing value of real goods and services.

Choosing the Right Income Protection Policy

1. Consider your employer’s sick pay and work related benefits, if any.
2. Understand how much of your cash savings are accessible and truly ‘rainy day’ funds.
3. Think over the importance of your health to your long-term earnings potential.
4. Assess the risk of your type of employment to your health.
5. Calculate the cost of your debts and living costs.
6. Think about your affordability for protection, along with wider protection needs such as life insurance and critical illness.
7. Establish the right protection as part of an overall financial plan.
8. Seek advice from a professional and independent financial adviser.

Start the process to finding the right cover, with the best provider at an affordable price today. Your Protection Plan.

Obtaining the right income protection insurance can give security for your finances and family wellbeing. In the UK, we have many different types of protection products and providers to choose from. Therefore, it is important to understand what income protection insurance can do for you, how it works, how much cover to obtain and whether this is the right type of insurance for you.

This guide to Income Protection Insurance will outline all you need to know about this type of cover, including the following:

1. What is Income Protection Insurance.
2. What are the threats to your income.
3. When should this type of protection be used.
4. What features are available within this policy.
5. What providers offer this type of cover in the UK insurance marketplace.
6. What is the 7-step process to finding the right cover.

This independent guide will enable you to move forward with confidence and protect your income. If you still further questions about income protection insurance, please do get in touch to ask.

What is Income Protection Insurance

Income protection insurance is also known as permanent health insurance.

The purpose of income protection insurance is to replace your income if you are unable to work due to being sick or injured.

Not to be confused with short term mortgage protection type policies, income protection can pay you a monthly income for two years, five years, or all the way through to retirement. The best policies can replace a whole working career of lost income if something awful happens to you and you do not recover.

An income protection policy will typically cover up to 65% of your income and can prove extremely valuable. For example, if you were 35 with earnings of £35,000 per year and then suffered a serious illness or injury causing you to be off work for the rest of your life; an insurance policy could pay you approximately £1,900 per month for the next 30 years. That would be worth £684,000 – a life changing sum of money.

Many features can be included in your policy. These effect the quality of cover, and the price, but give you the ability to tailor your policy to your own circumstances. The budget conscious may want to focus on what is essential, while those intent on getting the best cover for their income will go through the features to pick out what is important to them and get a comprehensive policy that best fits their circumstances.

What are the threats to your income

If you can’t work due to long term illness or injury, you still have to pay your mortgage, rent and other bills. Life doesn’t stop.

Income protection allows you to worry less about your money and focus on returning to health and work.

There are many reasons why you could be off work for a long period of time.

According to recent statistics*, the average age of claim is 40 years old and the top reasons for claiming are:

• Musculo-skeletal – 45% of claims are due to physical injury to the body.
• Cancer – 18% of claims are due to suffering from cancer. Another effective way to protect against this risk is through a critical illness policy.
• Mental illness – 10% of claims are from mental illness.
• Heart attack or stroke – 4% of claims are from heart attack or stroke, which is another issue where a critical illness policy can also provide effective cover.
• Neurological – 3% of claims are related to health issues affecting the brain, spine and nervous system.
• Other – The other 20% of claims are from a wide range of other health issues that can cause you to be off work for a long period of time. Unlike a critical illness policy which covers you for a set list of serious conditions, with an income protection policy there is no set list of reasons for being off work that the policy covers. If an illness or injury causes you to be off work for a long period of time; your income protection policy can be used to replace the majority of the lost income and ensure you can pay your bills and support yourself and your family.

*Source: Royal London Adviser 2019 Claim Statistics Report.

When should this type of protection be used

Income protection cover should be used as a core part of your protection needs. It is often overlooked for policies which pay out a lump sum, such as life or critical illness cover, but you are more likely to need to claim on an income protection policy than you are for life or critical illness cover.

A lump sum is more appealing as it offers clearer certainty on the value of the policy and is often used to clear debts, i.e. many people obtain insurance to at least clear their outstanding mortgage.

However, with an income protection policy you can keep your lifetime income more stable and help provide some financial security if you decide on a riskier employment path, such as becoming self-employed or a business owner.

Income protection should be considered as one of your first priorities, alongside life and critical illness cover to ensure you have the right types and amounts of cover in place for your own personal circumstances and financial risks to your wealth and wellbeing.

What features are available within this policy

Cover amount – An income protection policy typically covers up to 65% of your pre-tax earnings, or you can select a specific lower amount to help with the costs and at least ensure you cover your core bills.

Cover period – You can select a policy that will pay out a continuous claim until retirement, i.e. if you were off work from age 35 to 65 you would be paid for 30 years. Alternatively, a cheaper option limits the length of time a single claim can be paid to a period of 2 or 5 years. This type of policy allows repeat future claims, but it limits the cover payout for a single claim. I personally prefer the standard continuous claim policy but this can be a useful option if you are more budget conscious.

Deferred period – You can select a period of time that you need to be off work before you are eligible to claim on your policy. This can be as little as 1 week or up to 1 year. The longer the deferred period, the cheaper the policy, but make sure you have sufficient cash reserves or rainy day funds to cover the deferred period.

Guaranteed or reviewable premiums – You can have a policy where the monthly premium is guaranteed to not change each month. I like this option as it provides certainty over the cost of cover. Another option which typically offers lower costs at the start of the policy are reviewable premiums. This is where the policy is reviewed either annually or every few years and the cost increases in line with your age and the risks of this cover.

Indexation or level cover – Your policy can pay out a fixed amount of money, or the claim and premium can increase each year to help offset the costs of inflation and the potentially increasing household expenses.

Additional benefits – Many policies come with extras such as fracture cover, hospitalisation payment and back to work bonuses. some also come with death payments or terminal illness payments, and many now offer additional personal support to help you cope with your illness or injury. These additional benefits vary between providers and is an important consideration when selecting the right provider for your insurance needs.

Exclusions – There are a number of circumstances where an income protection policy will not provide any cover. The first one is redundancy/unemployment as this is a personal health related policy and not an economic related one. The other exclusions would be drug/substance abuse, criminal conduct, pregnancy/childbirth, or non-medical necessities such as cosmetic surgery. When you take out cover make sure you check the exclusions that apply so you fully understand your policy before proceeding.

What providers offer this type of cover in the UK insurance marketplace

As a practising IFA, I have access to the whole UK marketplace in order to find you the right policy. As of writing, there are currently 16 providers in the UK offering income protection insurance. There are friendly societies, mutual companies, and global corporate insurance companies to choose from.

Choosing the provider which is right for you will in many ways depend on the features you prefer and the pricing, however some people prefer the structure of a Friendly Society or Mutual, while some prefer the financial strength and brand awareness of a large corporate company.

As there are many different providers in the marketplace, they compete for your custom which helps to bring down costs and also encourages innovation in the sector and the development of additional benefits beyond the standard core cover. Pricing often drives the decision on who to select as an insurance provider, but often it is the additional benefits and continued service standards that in my view are more important when selecting the right provider for your own policies. Like most things in life, cheapest is often not the best choice to make.

What is the 7-step process to finding the right cover?

The following 7-step advice process will ensure you obtain the right type of cover, with the best provider, at an affordable price.

Step 1: We have a personal discussion of your needs and priorities. This usually occurs via Teams/Zoom/Telephone.

Step 2: Appraisal of your financial position to learn about what you own and what you owe, get to grips with your cash flow and understand the areas where cover could be needed.

Step 3: Complete a review of your existing employment benefits and protection policies already in place. I find that many people pay for duplicate cover and then leave gaps elsewhere. Or perhaps rely on employment benefits and then change jobs and lose benefits when they are older (and insurance is more expensive and difficult to put in place).

Step 4: Undertake independent research to select the most appropriate type of cover, amount of cover, with the best provider, and at the most cost-effective price.

Step 5: Present and explain your options so you understand the proposals.

Step 6: Confirm the recommended solutions in your own personal written report to back-up the understanding you have already gained and to fully outline the important features of the policy.

Step 7: Full assistance with completing the application and underwriting process until your risk is accepted by your chosen provider and your policy goes live.

All of the above steps can be provided without any direct upfront charge to you. I would be paid directly via the respective insurance providers for placing business with them and therefore there is no obligation to start this advice process. The cost of my advice and expertise is built into the regular monthly premiums.

Start the process to finding the right cover, with the best provider at an affordable price today. Your Protection Plan.

Here’s how you should think about insurance.

First think about the severity of the risk you are protecting against and secondly consider the possible scenarios that will occur in the future.

Severity of risk

Is the event you are insuring against likely to have a material impact on your finances and life?

For example, many people insure their mobile phones. Why exactly? If you damage or lose your phone it’s hardly going to alter your financial wellbeing or your life.

Sure, it would be incredibly frustrating and inconvenient, but just put your hand in your pocket and buy a new one.

Over the course of your life, the insurance premiums you pay for cover will outweigh how much you will receive for damaging or losing your phone.

With these small risks, you are far better to simply save your money and self-insure.

Larger risks however are the areas you should focus on. If you have a growing family and a large mortgage, can you really get by financially if you die, become incapacitated, or suffer from a critical illness?

These are huge life altering events for you and your family, and it’s highly unlikely that you will have sufficient savings or wealth to withstand these impacts.

Once you have decided about the types of financial risks you should be protecting against, you can consider the following possible scenarios to assess what could occur, before deciding what a prudent and sensible person would choose.

Possible scenarios

1. No insurance premiums paid and no claim required.

You choose not to pay for any insurance and you don’t suffer from any severe illness or early death.

This is the best scenario. The scenario we all wish for and financially the best outcome. You don’t have to give any money to insurance companies, don’t have to fill out any paperwork, your family’s finances do not suffer and you live a long and happy life.

Unfortunately, in this scenario you are basing your future prosperity on luck and have no plan at all.

2. Insurance premiums are paid but you do not need to claim on your policy.

You pay for insurance premiums and you don’t suffer from an illness or early death during the length of the policy.

In this scenario, you have essentially ‘lost’ the total sum of your insurance premiums. However you can rest easy knowing that you acted prudently and that the majority of these premiums would have gone to other insurance policyhilders who took out insurance but needed to claim.

Paying for insurance and never claiming can feel like a waste of money but it really isn’t.

You could view these contributions as a charitable gift. Most of your money has gone to help out other families in the UK who have taken out cover and needed to claim.

So take comfort in the fact that as well as acting sensibly and with foresight, you have helped others in their time of acute financial need.

3. Insurance premiums are paid and a claim is required.

This scenario is the whole reason people take out insurance. You pay for insurance premiums and you also need to claim.

You pay a small premium and receive a larger benefit to offset the financial impact of negative health related occurrences.

You have diligently paid for your insurance contract and one day you (or your family) need to make the call and claim on your policy. In most scenarios, that policy pays out in a timely manner to help out in a time of need and help to offset the potential financial shock and maintain prosperity.

4. You have no insurance cover and a claim is required.

In this scenario you don’t have any insurance but suffer from a severe illness, have a long period of time off work, or die before your time.

Unfortunately as you have no cover, you have no way of offsetting the financial impact this event causes. To add to the emotional stresses are now financial ones (which could have been prevented).

Your family would therefore need to get by with reduced prosperity and possibly even financial hardship and poverty.

Conclusion

These are the only four scenarios available to you in relation to insurance.

Option one is basing your future on pure luck and option four would be financially devastating.

Looking at it logically, options two and three are the only ones that make any sense and therefore you should act sensibly and take out some insurance to cover the major financial risks that can and do happen.

A solid protection plan is the foundation of a good overall financial plan.