Income Protection Insurance

If you suddenly found yourself unable to work, through injury or a long-term illness, have you considered how you would be able to manage financially?

Income protection insurance is designed to support people going through these situations and reduce the financial pressure suffered through a loss of earnings.

If you’re concerned about unforeseen circumstances that might affect your ability to work, our income protection guide will provide you with useful information and help you understand the options available.

What is income protection insurance?

If you are unable to work through injury or illness, income protection insurance can help replace lost income and provide you with financial support.

Having income protection insurance means you can benefit from regular tax-free payments. These payments will continue to pay out until you are able to return to work or until you retire. 

There are also shorter-term policies available, that pay out for a maximum of one or two years that come at a lower cost.

Unlike most life insurance and critical illness insurance products, income protection is designed to provide a regular income rather than a lump sum payout.

Whilst income protection doesn’t cover redundancy, if you were to suffer a loss of earnings through an accident or illness, income protection offers financial support so you can cover your monthly living expenses such as mortgage payments, household bills, and credit card payments while you recover.

The levels and bases of taxation and reliefs from taxation can change at any time and is dependent on individual circumstances.

Is it worth getting income protection?

It can be worth getting income protection if you want to maintain a level of income if are unable to work due to health reasons. It can help protect you and your family against significant financial hardship if you do not have other income or savings to support you.

Here are four questions to consider:

  1. Do you have substantial personal savings?
  2. Do you have someone you can rely on full-time and possibly be your carer if you were too ill to work?
  3. Do you have any other forms of income that could cover your basic living costs?
  4. Can you guarantee that you will never be unable to work through sickness or injury?

If you have answered no to any of these questions, an income protection policy may be worth consideration.

If you want to know if it is worth getting income protection, a useful exercise is to calculate what your total monthly expenses are.

If you were to suddenly lose most of your monthly income for an extended period, what impact would that have on your finances? How well would you be able to cope? How quickly would debt add up?

For many people, this scenario would be challenging. Getting income protection is a way to enjoy peace of mind and reduce stress.

If you are concerned about what might happen if you were unable to work for some reason, why not speak to our award-winning team?  

Income Protection & Statutory Sick Pay (SSP)

If you are too ill to work, the UK government currently provides Statutory Sick Pay (SSP) of £116.75 per week (correct as of June 2024), for a maximum period of 28 weeks.

After 28 weeks, any further payments from other state benefits will be means-tested which unfortunately means there is no guarantee of continued Government support.

If you have income protection insurance, not only will it top up any SSP payments, but it can also continue beyond the 28-week period.

Take a look at the Future Proof risk reality calculator. It will highlight your everyday risks in just a few seconds and show you the type of personal protection you may need. 

How does income protection work?

If you find yourself unable to work through ill health or an injury, income protection insurance will pay out a tax-free monthly benefit to replace your income. The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

How much you receive and for how long will depend on the details agreed in your policy and the insurer you are with.

How your income protection works will take into account things such as:

  • How much money do you want to receive each month (Benefit)
  • How many years you would like to be covered for (Term)
  • The time between the date you are unable to work and when you receive your first benefit (Deferred period)
  • How long you would like to receive your money for (Benefit payment period)
  • The definition of ‘incapacity’ (How your insurer defines your inability to work)

The monthly benefit you will receive is usually the equivalent of 50-65% of your gross salary. Some insurers will offer up to 70% (based on personal products available in the protection industry 2023). It is important to decide how much benefit you would like to receive when you are researching your options.

The definition of incapacity is how the insurer measures your inability to work and if you qualify for a claim. This will typically be based on your ability to continue working in your current occupation.

It is important to note that not all insurance companies provide cover against all occupations, especially if your job involves exposure to substantial personal risk. So, it is important to make sure your income protection policy is right for your needs.

Assuming that your policy insures you against your own occupation if you fall ill and are unable to work, the insurer will start to pay you a monthly benefit after the deferred period and can continue to provide regular monthly payments until you are able to return to work.

Most income protection policies will allow you to make multiple claims, so if you fall ill again in the future you should be able to make a further claim.

How much does income protection cost?

There are many factors that determine how much income protection insurance might cost. Key details such as the sum assured, the deferred period and the term of the policy will impact the amount you might pay each month.

Comparing premiums

The table below highlights the difference in monthly premiums between a full income protection policy (where the payout ends upon recovery, or the policy comes to the end of its term) and a short-term income protection policy with a set payout period. Here we use two years as an example.

Please note that any premiums mentioned are indicative only and based on this specific case study/ example, which is shown for information purposes only. Premiums shown are an average of the 5 cheapest insurers. Your own circumstances will determine whether the amount payable is more or less than the figure quoted.

Quotes provided July 2023.

Age in yearsSum assured per monthTerm in yearsDeferred period in weeksFull income protection cover monthly premium2 year short term payout monthly premium
30£1500To age 654£33.47£15.55
30£1500To age 65829.60£12.13
30£1500To age 6513£20.74£9.33
30£1500To age 6526£17.67£8.03
Female nurse touching senior man's hand on railing

What does income protection insurance cover?

Income protection is designed to cover a loss of income if you are unable to work through illness or injury.  It covers many illnesses that are not considered in a critical illness policy and yet are debilitating.

Income protection vs. critical illness insurance

If you are comparing critical illness cover with income protection, it is worth noting that you can have both policies at the same time. They offer different types of protection, but a key difference is that Income Protection offers a monthly benefit whereas Critical Illness will pay out a lump sum.

Another key difference is that many illnesses and conditions are not covered by Critical Illness insurance. Many of which may cause debilitating pain or mental anguish. In many of these situations, Income Protection would offer the policyholder protection when Critical illness may not.

      • Shingles

      • Fibromyalgia

      • Endometriosis

      • Broken bones

      • Frozen shoulder

      • Slipped disc

      • Mild Depression/anxiety

      • Arthritis

      • Kidney stones

      • Gallstones

      • Sciatica

      • Stomach ulcers

      • Acute pancreatitis

      • Pregnancy-related complications

      • Skin Disorders – Eczema and Psoriasis

      • Ears/Eyes – Tinnitus, Labyrinthitis, Vertigo, Detached Retina

      • Wisdom Teeth removal

      • Hernia

      • RSI

      • Severe Migraines

    Every insurer has their own underwriting terms and conditions at claim stage. The above is used for example purposes only and your own circumstances will dictate whether a claim is paid.

What won’t income protection cover?

Generally speaking, income protection will not cover you if you are made redundant, quit your job or are dismissed.

How much will income protection insurance pay out each month?

On average, an income protection policy will pay between 50 and 70% of your earnings before income tax.

      • You are able to demonstrate loss of earnings from being unable to work and proof of earnings

    No insurance policy is ever guaranteed to payout. However, your policy should pay out as long as:

      • You meet your insurer’s definition of incapacity (as described in your policy)

      • Your loss of income is for a medical reason

      • Your inability to work has been confirmed by a medical professional

      • You have been open and honest at outset about any pre-existing medical conditions

      • You are able to demonstrate loss of earnings from being unable to work and proof of earnings

      • loss of income for a non-medical reason (such as redundancy)

    Links from this website exist for information only and we accept no responsibility or liability for the information contained on any such sites. The existence of a link to another website does not imply or express endorsement of its provider, products or services by us or St. James’s Place. Please note that clicking a link will open the external website in a new window or tab.Around 84% of income protection policies will pay out according to figures published by the Association of British insurers June 2023.

    Situations, where your income protection insurance won’t pay out, might include:

      • not being signed off work by a medical professional

      • your deferred period has not yet ended

      • not meeting your insurer’s definition of incapacity

      • loss of income for a non-medical reason (such as redundancy)

    Links from this website exist for information only and we accept no responsibility or liability for the information contained on any such sites. The existence of a link to another website does not imply or express endorsement of its provider, products or services by us or St. James’s Place. Please note that clicking a link will open the external website in a new window or tab.

In 2022, 84% of Income protection claims were paid. Association of British Insurers (ABI) 06/23.

The 16% of claims that were declined were from applicants not disclosing important information when taking out the policy. e.g a pre-existing health condition, or a dangerous hobby.

Is there a limit to how much my policy will pay out?

Your insurer will normally limit how much your policy will pay out to a maximum of 70% of your gross income. Most policies will insure you for 50-65%.

If you have added the option of fracture benefit to your policy, you would receive an additional lump sum on top of your monthly income protection benefit. Most insurers will limit fracture benefit payouts to £7,500 but this can vary.

  • How long you will wait before receiving a payout will depend on your chosen waiting period – known as a deferred period. Deferred periods are normally 4, 8, 12, 26 and 52 weeks, which will be discussed during the application stage.

    The waiting period you select will likely depend on how long you would be able to survive without a regular income. 

    Once insurers have the information needed to make a claims decision, income protection claims are usually processed quickly.

  • If you have a full income protection policy, you will receive income payments until you feel better and are able to return to work until you retire, or until your policy ends.

    If you return to work in a lower or part-time capacity as a result of your illness then the appropriate reductions will be made in your payout but you will still be paid the benefit as a top-up to your new salary. This is called proportionate benefit. If you have a short-term income protection policy, your policy payout will last one, two or five years depending on what you chose at outset.

What are the benefits of income protection?

There are many wide-ranging benefits of income protection such as:

  • A payout in the event that you are too ill to work or have suffered an injury or accident like a car accident
  • Money to pay for your mortgage/ rent/ bills or transport when out of work
  • Flexibility to work with your existing employee benefits (such as income replacement plans)
  • Proportionate benefit – if you return to work in a different/ part-time role or, lower income as a direct result of the illness or incapacity, some insurers will continue to pay an appropriately reduced monthly benefit.
  • Flexibility to freeze your income protection policy – for example, this can be useful if you want to take a career break or are finding outgoings tough at the moment.
  • The ability to cover a non-working partner – meaning you would be able to cover the costs of running a household day to day while your partner recovers from an injury or health issue.

What are the different types of income protection?

If you want to protect yourself against a loss of income due to ill health or injury, here are some of the most common income protection products.

Type of Income ProtectionDescription
Full income protection plansPays replacement income until retirement or return to work, with no limited payment period
Short term income protection plansPays out for a limited period, such as 1, 2, or 5 years, with cheaper premiums than full income protection
Group Income ProtectionEmployee benefit for employees unable to work due to sickness or injury
Executive income protection Income replacement policy for key employees
Accident, Sickness & Unemployment (ASU)Provides income for employees unable to work due to sickness, injury or redundancy
Mortgage Protection Insurance Covers your mortgage payments if you’re out of work due to accident, sickness, or unemployment

How do I get a quote for Income protection?

If you want to get a quote for income protection, you have a few options.

Our 60-second quote calculator will give you an estimated monthly premium. However, we recommend you speak with one of our friendly advisers for an exact premium. To provide you with an accurate quote, they will take into consideration:

  • employment benefits
  • any pre-existing medical conditions
  • your hobbies
  • any occupational risks

A quotation and any accompanying advice you may receive from our team are under no obligation. We are advisers foremost, not salespeople. 

Our priority is you and your family so your needs are at the heart of any advice that we provide.

Don’t take our word for it – read what our clients say about us.

To provide you with an exact quote your adviser will ask you:

  • Your age
  • Your expected retirement age
  • What is your income before tax?
  • Are you a Smoker/ non-smoker?
  • What is your occupation – is it high-risk? 
  • How much cover do you need? 
  • Do you have any pre-existing medical conditions?
  • Do you have a family history of medical conditions? Eg diabetes 
  • What benefits does your company offer to help you if you are long-term sick?
  • How long can you last without an income e.g. how much do you have in savings?
  • Lifestyle questions – How many units of alcohol do you drink per week, have you ever taken drugs in the last 10 years? Do you take part in any extreme hobbies?

How do I choose the best income protection insurance?

Choosing the best income protection insurance largely depends on you.

The ‘best’ income protection policy can be defined as a policy that best fits your employment circumstances, financial needs, and budget. 

For instance, if you do not have a lot of savings and know that just a few weeks out of work could cause you and your family a lot of financial stress, you may want to look at an income protection policy with a shorter deferred period.

The best insurance policies will often provide useful options and additional benefits depending on your personal needs and lifestyle which may be extremely valuable.

We have listed some common benefits below.

  • An indexation option can be added to your income protection policy and will help protect any benefit from the effects of inflation. More about indexed linked insurance.

  • Hospitalisation benefit is an extra payment that you would receive if you spend a certain amount of time in the hospital (terms vary from insurer to insurer)

  • Following an income protection claim, you may be able to return to work in a different role or with reduced hours. If this is due to a direct result of the illness or incapacity and for a lower income, having proportionate benefit means you continue to receive your payout as an appropriately reduced monthly benefit.

  • Some insurers offer a Global Treatment service that provides policyholders with access to medical treatment abroad for serious illnesses. Global Treatment generally includes 3-4 star accommodation for the policyholder and a companion, cover for medication costs (up to a certain limit) and a maximum coverage amount of up to £2million. Sourced from Aviva – Global treatment terms and conditions July 2023.

  • Helping Hand is an additional benefit provided by some insurers. If you are ill or need extra support, this service will give you access to your own personal nurse adviser from the independent care advisory service RedArc.

  • If you are unable to see a GP in person or need urgent assistance, remote GP services give you access to a doctor (often 24/7) so you do not have to travel to a surgery or sit in a waiting room. These services are also available if you are overseas which can be especially valuable.

  • Some insurers offer something called a Death benefit as part of your policy benefits.  This would be paid as a lump sum that is often calculated as a multiple of your salary, should you die . Terms and conditions vary between insurers and some do not offer this benefit.

  • Fracture cover is often included at no additional cost within income protection policies although it does vary between insurers. This additional policy feature will provide you with a lump sum payment if you break or fracture a bone. The payment itself will depend on the type of bone fracture and the payment is usually capped at £7,500.

    You do not need to be claiming income protection to receive this but if you are, it will be paid out on top of your monthly benefit.

I am self-employed, can I still get income protection?

Income protection for people who are self-employed is readily available and for many, one of the most valuable types of insurance.

Unlike employed people, our self-employed clients tell us that if they don’t work, they simply don’t get paid.

Because income for self-employed professionals can fluctuate, instead of a payslip, insurers will want to see your tax returns to gauge how much cover they might offer you.

If you have a limited company, a more tax-efficient way of insuring your income might be through an executive income protection plan. A plan like this could offset corporation tax and may result in a saving on your premiums, depending on your tax band. The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

How do I make an income protection claim?

If you want to make a claim on your income protection policy, here is how it will usually work.  

  1. Through illness or injury, you become too ill to work
  2. You speak to your GP who confirms your diagnosis and that you are too ill to return to work
  3. You contact your Protection adviser or your insurance company to request a claim form
  4. You will need to provide your insurer with evidence of your income. P60 and three payslips or tax returns
  5. You send your insurer proof of your medical condition in the form of a letter from a doctor or medical specialist
  6. Once your insurer has collected the required information they will assess your claim
  7. If your insurance provider is happy with the information, your benefit will commence in line with the particulars of your insurance policy.
  8. Your deferred period starts from the date you are off work sick

If you are a Future Proof client, as part of our ongoing service, we can place the claim on your income protection policy for you and deal with any administration that might arise. 

Popular questions our clients ask us about income protection:

  • A full income protection policy can typically last until the date you are looking to retire. A short term income protection policy can pay out for one, two or five years depending on the pay out term agreed at outset.

     

  • Income protection and life insurance are only available to buy separately. Although income protection is not included with life Insurance, you may have a waiver of premium option as part of your life insurance policy.

    Waiver of Premium Benefit is an add-on. Essentially, the insurance company will pay your insurance premiums if you are unable to work for a period of time due to accident or sickness.

    Waiver of premium is only available if you are employed, and usually only until you reach age 65. It is normally added to life and critical Illness Insurance for a nominal price.

  • If you want to have financial peace of mind while you are working, Income protection is a product that will give you that security. If you want to leave financial security to your family and loved ones when you die, Life insurance will help you achieve that goal. Both policies are available to buy separately, there is no one policy that covers both types of insurance.

    Your decision to buy both income protection and life insurance should be based on the amount or financial security you want in life. However, the benefits of having both are often considered worthwhile.

  • If you have been made redundant, your income protection policy will not pay out. This will be because you will not be replacing earned monthly income. An income protection policy will only payout if you are too ill to work and if you are earning an income. 

     

  • Unfortunately, like redundancy, income protection cover will not pay out if you have been dismissed from your job. 

  • Although stress is not classed a medical condition itself, if it is serious and has led to depression or anxiety, stress will be covered by income protection. The insurer will want to understand the source of stress. If the stress is due to concerns outside of work, a claim is more likely to be accepted.

    Any claim would be assessed in detail and not readily dismissed. With many insurers, additional benefits such as mental health support services will be on hand to help your condition.

  • If you are unable to work due to mental health problems, income protection will cover you. Mental health issues are among the top 5 reasons for claiming income protection.

    In 2022, Holloway Friendly reported that 7.4% of claims were due to mental illness.

  • Income protection does not cover maternity leave itself. However, it may cover you if you suffer complications, meaning that you are too ill to work after your maternity leave.

  • Some policies provide a proportion portion of your income protection even if you are hospitalised before your deferral period ends.

  • If you have opted into waiver of premium, it means that you won’t have to pay your income protection premiums while you are claiming on your policy. This can be helpful to reduce your monthly outgoings while you are recovering.

     

  • Many income protection policies don’t stop paying when you return to work in a different capacity. If your earnings are reduced because you can only work part time, your income protection will continue to payout at a reduced rate (in line with your reduced earnings). These payments known as proportionate benefit will end once your earnings recover to the level of income you received when you took the policy out.

  • You can get an income protection policy to cover a zero-hours contract. You must have proof of your income at the application and claim stage though.

  • If you become unemployed and have an income protection policy you should speak with your adviser. It may be that the policy can be changed to a Houseperson policy.

    If you have taken a career break, many insurers offer a pause in the policy to accommodate this.

    In either situation, your circumstances will have changed and as such it is best to speak with your adviser to ensure you don’t miss out on anything should you become ill or injured.

  • The best time to take out income protection will be the first time that you come to rely on your own income. Whilst employers sometimes offer this type of benefit, it is worth considering what would happen if you left the company and moved to another employer that did not offer it. It is always beneficial to review your policy when you start a new job as there may be different benefits that will affect your future level of cover

  • Income protection payments are paid on a monthly basis as a replacement income.

    If you have Fracture benefit as part of your income protection cover, you can receive a lump sum payment in addition to your income replacement benefit. Fracture benefit is payable even if you are able to return to work.

     

  • Usually for a personal income protection plan, payouts are tax free.

    The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of tax relief depends on individual circumstances.

  • The value of any benefits in kind you receive can be covered by your income protection insurance benefit.

  • Income protection insurance benefits are meant to be used for whatever you need the replacement income for. Meaning you can use them to cover your mortgage payments. However, as income protection will only cover a part of your income, it will depend on your monthly mortgage payment as to whether the benefit will be enough to cover the entire amount.

  • Income protection and Mortgage protection insurance work in different ways and are only available as separate policies. Both offer different benefits and work in different ways. Mortgage protection is a form of life cover that will pay out a lump sum should you die. Income protection pays out a monthly replacement income if you are too ill or injured to work. If you would like the comfort of having financial protection while you are working and if the worst should happen, purchasing both types of policy could be worth considering.

  • The need to have a medical to get an income protection policy will depend on the amount of cover you are requiring per month and how old you are. All insurers have different limits which trigger a medical being requested. We can help advise you on these as medicals are not automatically requested for everyone at outset.

  • Whether an income protection policy will cover you for an existing condition will depend entirely on what your condition is and the details associated with it. E.g. how long, how severe and, how has it affected your working life so far?

    The best thing to do is speak with your adviser, who can search the market for the most sympathetic insurer for your condition.

  • Income protection insurance can be paid for by an employer. In this situation it is called Executive income protection or group income protection and the policy would be owned by the employer with the income being paid to the employee via normal payroll.

     

  • Income protection cannot be assigned to another person. It is a personal policy for the insured only and specifically relates to your health and your inability to work.

  • If you receive state benefits from the government, such as Universal Credit, they could be affected by the payment of income protection. Individual consideration is required. If you would like to speak to somebody about your circumstances and how income protection might affect them, out team will be happy to assist and look at any figures for you. Our advice is no-obligation.

     

  • The only situation where you can still work and be paid income protection would be on a proportionate basis. This is where you would be able to return to work after suffering an illness or injury, but on a on a lower income or reduced hours. Under this benefit you receive from your income protection cover will pay you an proportionally reduced amount to top up your salary and help you meet your living costs more comfortably.

  • Being over 60 should not stop you from buying income protection insurance. Income protection is available up until the age of 65.

  • You should stop your income protection when you no longer need it to provide a replacement income if you were to become ill. For example, when you retire. If you want to stop your income protection cover there should be no cancellation costs involved.

  • If you die some insurers include in their income protection policy’s a death benefit which may be up to 6x your monthly income as a lump sum. However, the income protection policy would cease to pay out the monthly replacement income when you pass away.

  • It’s important to understand the difference between Income protection insurance and PPI as they serve different purposes. Income Protection provides you with ongoing financial support if you’re unable to work due to an injury or illness, whereas PPI helps you to maintain your repayments on a specific debt, like a mortgage or a loan.

    It’s worth noting that PPI has received some negative attention in the past due to mis-selling practices by certain financial institutions. As a result, many people are hesitant to take out this type of policy.

Income protection – Summary

Many of us will have to take time out from work at some point through illness or injury. If you want to make sure that you have enough money to cover your monthly living expenses, Income Protection can be a very valuable type of insurance.