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Income protection insurance

Compare our best income protection insurance

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

What is income protection insurance?Is income protection insurance worth having?How does income protection insurance work?What types of income protection are there?What affects the cost of income protection insurance?How to choose the best income protection insurance Can I get income protection insurance if I'm self-employed?

What is income protection insurance?

Income protection insurance can cover you if injury or illness prohibits you from working. Think of it as a way to protect a regular income until you return to work or retire.

This can help ensure you can pay for food, groceries and bills. You may also have cover for involuntary redundancy. However, long-term income protection insurance may not be able to provide cover for unemployment. Unemployment insurance might be a better option for this.

It can help cover your income if illness or injury prevents you from working
It's a safety net, especially if you have financial dependents
It may not be suitable if you already have a similar employee benefit or are about to retire

Is income protection insurance worth having?

Income protection insurance could be particularly useful if:

You're self-employed
You have limited sick pay from your employer
You have multiple financial dependants or have greater commitments
You want to protect your savings

In these instances, having a form of financial protection in place can step in and bridge the gap when necessary.

However, income protection isn't for everyone, and you may not want to consider it if:

You already have an existing form of income protection in place
You're about to retire, so unemployment simply brings forward your retirement
You're potentially eligible for financial government support instead

The key to working out whether income protection is right for you is by asking what you would do without your typical salary.

If an injury or illness prevents you from working, and your monthly income reduces as a result, can you pay for your usual outgoings?

How does income protection insurance work?

If you apply for income protection insurance, you'll need to provide personal and financial information to determine what you need from a policy.

You can choose your cover amount. Depending on your insurer, this is typically up to 60-80% of your gross monthly or annual income. You can also choose whether you require a lump sum or regular payments to cover your income. Income protection payments are usually tax-free.

To claim, you'll need to contact your insurer and explain your situation. You may also need to provide evidence, such as a doctor's note, for example. If your claim is successful, your insurer should arrange your payments.

Income protection insurance tends to include a 'deferred period'. This means that following a successful claim, you'll usually have to wait a minimum of four weeks after you stop work for payments to begin.

The deferred period varies; you can typically select between a few weeks, 6 months, 1 year and 2 years. Choosing a longer waiting period may reduce what you pay in premiums.

Involuntary redundancy and job loss may be covered by an income protection insurance policy. You'll need to check the terms and conditions of your policy, as some contain specific exclusions.

“Income protection is a flexible safety net, but it's important to understand the difference between long-term and short-term policies. Long-term cover is for serious illnesses or injuries that could keep you out of work for years, while short-term policies often include unemployment cover for redundancy. Choosing the right one depends on your personal financial circumstances and the specific risks you want to protect against.”

Imogen Bland

Insurances expert

Types of income protection insurance and policies available

Short-term income protection

Short-term income protection insurance can help cover your typical income if you suffer an injury, illness or involuntary redundancy. Your claim rests on whether you can't perform elements of your role. These policies are known as 'own occupation'. 'Suited task' policies don't offer as much protection and may not pay out if your employer is able to offer you a different role at work.

Long-term income protection

Long-term income protection insurance can help cover you until you return to work, retire or until the income protection policy expires. These policies may include a minimum cover period of 5 years. Long-term income protection can cover more serious situations where you may not return for a longer period of time.

Permanent health insurance

Permanent health insurance typically covers a percentage of your income if illness or injury prevents you from working. It’s a long-term insurance and can cover you until you return to work or 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 begins after three months.

Accident, sickness and unemployment cover

Accident, sickness and unemployment 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 allow you to change your level of income protection insurance after a set term.

Age-related policies

Age-related policy premiums increase as you get older. Your occupation or lifestyle should have no effect on your premium.

What affects the cost of income protection insurance?

When it comes to the cost of income protection insurance, you might think that your monthly or annual salary is a driving factor. However, there are multiple various factors that can determine what you pay, such as:

Your salary: It's a key factor because claim payouts are based on your salary, which in turn can affect how much you pay in premiums.
The type of income protection policy you choose: Guaranteed policies offer fixed premiums, whereas reviewable and age-related income protection policies may change over time. This can affect what you pay.
The length of your deferred period: Generally, if you select a longer deferred period, it can help reduce what you pay in premiums. That said, you'll need to ensure you're financially secure before claim payouts begin.
Your occupation: If your job poses a greater risk in terms of your likelihood of claiming, it may increase what you pay in premiums.
Your level of cover: With income protection insurance, you can usually choose how much of your monthly or annual salary you'd like to cover. As you might expect, choosing a higher percentage of cover increases what you pay.

By assessing your own personal situation against these factors before completing your application, you can help ensure you're getting an accurate amount of cover.

For example, some providers may offer a basic cover amount of 60% of your salary. Let's say you can increase the cover amount to 80% of your salary. Consider whether you can meet all of your financial commitments at a lower percentage. If you can, you may be able to reduce what you pay for income protection insurance as a result.

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.

Can I get income protection insurance if I'm self-employed?

Yes, you can get income protection insurance if you're self-employed. But, as you'd imagine, the application is slightly different compared to someone working for an employer.

If you're self-employed, your earnings may fluctuate depending on a range of factors. In turn, income protection insurance providers may require you to produce a year's worth of audited accounts during an application.

This is used to work out an average monthly salary that can help calculate your cover amount. If you're self-employed or own a business, you won't usually have cover for unemployment, just accident and sickness.

However, without statutory sick pay, income protection insurance can be a vital financial safety net for those self-employed. This is especially true if illness or injury directly impacts your potential earnings.