Income protection insurance pays out a regular monthly income that will help you pay any bills. Taking the pressure off whilst you recuperate from sickness or disability.

What is income protection insurance?

Income Protection Insurance helps to replace your income if you are unable to work due to an accident or sickness.
It could provide you with a tax-free income and could continue to pay out until you are able to return back to work or until you retire. 

How does income protection work?

Income protection works by paying out a monthly benefit if you cannot work due to illness or injury. The benefit replaces your income and can be used to cover rent/ mortgage payments and help pay monthly bills. Income Protection policies will typically provide tax-free payments equivalent to 50% to 65% of the gross salary. Although some companies will offer up to 70%. 

This cover does not typically include redundancy cover. 

  1. When you become too ill to work, you submit a claim to the insurer. They will request information from your GP to prove your claim.
  2. There will then be a waiting period (called a deferred period) which you will have pre-chosen at the application stage. This will be the length of time from making a claim on your insurance policy, until the point at which a payout is made. It could be 1, 4, 8,13,26 or 52 weeks. During your chosen deferred period, you would use any personal savings or employment benefits owed to you.
  1. The beginning of the deferred period is the date from when you were unable to work. 
  2. After this, your income protection payment would begin.
Female nurse touching senior man's hand on railing

What does income protection insurance cover?

Income protection insurance covers income lost from not being able to work due to illness or accident. Income protection insurance insures up to a maximum of between 50% and 70% of your earnings.

Is getting an income protection policy worth it?

If you can answer no to any of these three questions then getting an income protection policy is most definitely worth it:

  1. Do you have unlimited savings?
  2. Do you have someone to rely on full time and be your carer if you were too ill to work?
  3. Can you guarantee that you will never get too ill to work?

Income protection is probably the most important policy to have. Have a think about what your income pays for every month? Including any pension contributions, life insurance premiums, or possibly even spousal maintenance payments?

The government pays out Statutory sick pay (SSP) of £ 99.35 per week ( July 2022), for only a maximum of 28 weeks. Could you survive on this amount? After 28 weeks any further payments from other state benefits will be means-tested and so there is no guarantee of continued Government support.

Your income protection would top up the SSP and continue beyond 28 weeks.
In 2020, 87% of Income protection claims were paid. Association of British Insurers (ABI) 05/21. The 13% 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.

Take a look at the Future Proof risk reality calculator. It will highlight your everyday risks in seconds. Showing you the type and level of protection you need. CLICK HERE

Are there different types of income protection?

There are two different types of Income protection policies available:

Full income protection plans

Full income protection plans will pay out replacement income until the earliest of: either, you retire or you reach the end of the policy term or you are well enough to return back to work. There is no limited payment period.

Short-term income protection plans

Short-term income protection plans will pay out for the earlier of a limited payment term such as 1, 2 or 5 years, the end of the policy term or when you are well enough to return back to work. Owing to the limited payment term premiums for these policies are cheaper than the full income protection plans. 

What are the benefits of income protection?

There are many wide-ranging benefits of income protection:

  • A payout in the event that you are too ill to work or have suffered an injury or accident like a car accident
  • The money can be used to pay for your mortgage/ rent/ bills or transport
  • We can help to ensure that your Income protection plan starts when you most need it
  • We can arrange for your income protection plan to dovetail with any employment benefit sickness plans. This keeps costs down and ensures a smooth transition, to keep your income flowing
  • If you find yourself able to return to work in a different/ part-time job or for a lower income as a direct result of the illness or incapacity. Some insurers will continue to pay an appropriately reduced monthly benefit. This is called proportionate benefit and can help with a phased approach to returning to work
  • Some insurers will allow you to freeze your income protection policy instead of cancelling it if you are looking to take a career break. Many of our clients do this if:
    • they want a break from work
    • to study and travel
    • do research
    • look after children 
    • transform a hobby into a business 
    • get themselves back on track following redundancy
  • It can be just as important to have protection in place for a “non-working” partner. Who keeps the family and household running allowing the working partner to continue with their job. Taking into account the cost of replacing a cleaner, taxi driver, nanny, shopper, gardener or babysitter. We can help you to decide the amount that a house person or non-working partner is insured for.
  • Income protection is especially important for the self-employed. As often, if they don’t work they don’t get paid.

How much does income protection insurance cost?

There are many factors that will determine how much income protection insurance will cost. 

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. This will take into consideration employment benefits, pre-existing medical conditions, hobbies and any occupational risks.

A quotation and any accompanying advice is no obligation and we are advisers foremost, not salespeople. 

You and your family come first and are at the heart of any advice that we provide. Have a look at what our clients say about us.

For an exact quote your adviser will ask you:

  1. Your age
  2. Your expected retirement age
  3. What is your income before tax?
  4. Are you a Smoker/ non-smoker?
  5. What is your occupation – is it high risk? 
  6. How much cover do you need? 
  7. Do you have any pre-existing medical conditions?
  1. Do you have a family history of medical conditions? Eg diabetes 
  2. What benefits does your company offer to help you if you are long-term sick?
  3. How long can you last without an income e.g. how much do you have in savings?
  4. 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?

Comparing premiums

The table below highlights the difference in premiums between a full income protection policy (the payout ends upon recovery or the policy comes to the end of its term) and premiums from a short-term income protection policy with a payout period of two years.

Age in yearsSum assured per monthTerm in yearsDeferred period in weeksFull income protection cover premium2 year short term payout premium
30£1500To age 654£17.61£12.19
30£1500To age 658£15.13£9.41
30£1500To age 6513£12.04£7.20
30£1500To age 6526£10.24£6.32

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

Popular questions our clients ask us:

  • Income protection is not included in life insurance. However, there may be an option of Waiver Of Premium as part of your life insurance policy. Waiver of Premium Benefit is an add-on.  Essentially, the insurance company will pay your 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 can often also be added to Life and Critical Illness Insurance for a nominal price. 

  • Income Protection and life insurance are only available to buy separately. They can not be purchased as a combined product. However, both types of insurance should be considered if you have a mortgage.

     

  • The best time to take out income protection will be the first time that you come to rely on your own income. It is also beneficial to re-look at your policy when you start a new job. There may be better employment benefits on offer or possibly reduced ones that will affect your future level of cover

  • 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. There are no cancellation costs involved.

  • There are some income protection insurance policies which exclude payment for pre-existing medical conditions. Others may consider an exclusion from injury caused by a hazardous hobby. We will call the insurers before the application stage on your behalf to find the most sympathetic. To avoid disappointment and wasting time applying to those who are stricter with their cover. 

  • Income protection is paid out on a monthly basis as a replacement income. However, lump sums are paid in the form of a fracture benefit in addition to your income replacement benefit if you are not able to work. Or, as a stand-alone lump sum even if you are able to work.

  • 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. 

  • Yes, you should have separate mortgage protection and income protection. The two policies are individual and can not be combined. They both 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 can afford the premiums then yes, you should get both income protection and critical illness cover as they both complement each other. 

    Some of the most common illnesses that create debilitating pain or mental anguish are not covered as a critical illness. They can go on for weeks before symptoms ease or you get better enough to return back to work.

  • Your state benefits could be affected by the payment of income protection so, individual consideration is required. We would be happy to assist and look at any figures for you. Our advice is no-obligation.

  • Yes, being over 60 should not stop you from buying income protection insurance. In fact you can apply up to age 64.

How do I get an income protection quote?

Our 60-second online quote calculator will give you an estimated monthly premium. 

For an exact quotation based on your circumstances and medical history, please call 0800 644 4468 or request a call back from our friendly advisers.

How do I choose the best income protection insurance?

The ‘best’ income protection policy can be defined as a policy which best fits your employment circumstances and budget. The best insurance policies offer useful additional options and benefits such as : 

  • An indexation option can be added to your income protection policy and will help protect any benefit from the effects of inflation. 
  • Hospitalisation benefit. This is an extra payment that you would receive if you spend a certain amount of time in hospital (terms vary from insurer to insurer)
  • Proportionate benefit. Following a claim, you may be able to return to work in a different job/ part-time position. If this is due to a direct result of the illness or incapacity and for a lower income, you will continue to receive your payout as an appropriately reduced monthly benefit.  This is not the case for all policies or all insurers, your adviser can look into this on your behalf.
  • Death benefit – some insurers offer up to 6x your monthly salary as a lump sum should you die as part of your policy benefits
  • Some insurers offer additional benefits such as: 
    • Global treatment, 
    • Helping hand rehabilitation support
    • Remote GP services. 
  • Fracture cover – this is often included at no additional cost within income protection policies but can vary between insurers. This additional element provides a lump sum payment of up to £2200 for example, (depending on the type of bone fracture). 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 payout.  

Find out about what benefits you might be entitled to and read more about additional benefits here.

  • An income protection policy will typically last until the date you are looking to retire. 

    Liverpool Victoria 2021 has said that their longest claim on a full income protection policy has been for 35 years and is still paying out.

  • There are short-term policies that payout for a maximum of one year, two or five years. With short-term policies, the premiums are lower than full-income protection policies. Where the payouts continue until retirement, death or until you get better. Our advisers will be able to advise on the most comprehensive short-term protection policies available.

  • There are many long-term cover policies available for income protection. They will payout for the duration of your illness until retirement. They all vary in costs and additional benefits between insurers. Our advisers can compare the policies out there that will be most beneficial for your circumstances.

Income protection and medical conditions/medical examinations

Below are some of the popular questions based on medical conditions and medical examinations that our clients have asked us:

  • 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.

     

  • Yes, income protection will cover you if you fall ill with COVID and are unable to work for a length of time.

  • If you are unable to work due to mental health problems, income protection will cover you. In fact, mental health is in the top 5 reasons for claiming income protection. Liverpool Victoria reported that in 2021, 15% of claims were due to mental illness.

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

  • 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. Eg 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. 

  • If you are unable to work because you are suffering from long COVID, your income protection policy will offer protection. If you are applying for an income protection policy and have long covid, you will not be offered cover immediately. The insurer will postpone an application for a year and then they may reconsider if you have returned to work in that year.

  • Although stress is not classed a medical condition itself, if it is serious and has led to depression or anxiety, these will be covered by income protection. The insurer will want to understand the source of stress. Insurers vary, however if the stress is due to outside of work concerns, 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 I become ill, is income protection better than critical illness cover?

If you become ill it is important that you are covered for both income protection and critical illness cover. In order to explain why it is important to explain the differences between the two policies and what they do.

Income Protection – In brief, this policy pays out a monthly benefit if you cannot work due to illness or injury. The benefit can be used to help pay monthly bills, replace income and/or cover mortgage payments.  It pays out until you are able to return back to work or until you retire.

Critical Illness – Critical Illness Insurance policies pay out a lump sum if you become critically ill. (and the condition is covered by your critical illness policy). The lump sum payout could be used to repay the mortgage, settle debts or pay for medical expenses. All Critical Illness policies cover three core conditions: cancer, heart attacks and strokes. The critical illness conditions that you will be covered for will vary from Insurer to insurer.

When it comes to planning for your future, it is easy to believe that illness or accident won’t happen to you. Many people feel fit and healthy and believe that it is a safe bet to choose Critical Illness cover over Income protection. To save themselves from paying another monthly premium.

But, did you know that the following list of illnesses and conditions is not covered by Critical illness insurance?  And yet listed are some of the most common illnesses that create debilitating pain or mental anguish. Which can go on for weeks before symptoms ease or you get better enough to return back to work.

  • Shingles
  • Fibromyalgia
  • Endometriosis
  • Broken bones
  • Frozen shoulder
  • Slipped disc
  • Mild depression/anxiety
  • Arthritis
  • Kidney stones
  • Gallstones
  • Sciatica
  • Stomach ulcers
  • Acute pancreatitis
  • Pregnancy related complications

Did you know that some real-life income Protection claims* actually range from:

  • Skin Disorders – Eczema and Psoriasis
  • Ears/Eyes – Tinnitus, Labyrinthitis, Vertigo, Detached Retina
  • Wisdom Teeth removal
  • Hernia
  • RSI
  • Severe Migraines

*Sourced from Cirencester Friendly 2018 with thanks.

 The important message to take away from this is how the policies differ and why they complement each other.

Income protection and employment

Below are some of the popular questions based on employment that our clients have asked us:

  • No. Income protection cover will not payout if you have been dismissed from your job. An income protection policy will only pay out if you are too ill to work and if you are in employment.

  • Definitely, for the self- employed income protection is one of the most valuable types of insurance. Often when we speak with our self -employed clients they tell us that if they don’t work, they simply don’t get paid. Instead of a payslip, insurers will want to see your tax returns to gauge how much insurance they can offer you. A more tax-efficient way of insuring income would be through an executive income protection plan if you have a limited co.  By offsetting corporation tax, it could result in savings of an equivalent of up to 50% on the premiums, depending on your tax band. 

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

  • 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.

  • The only situation where you can still work and be paid income protection would be on a proportionate basis. Where you are able to return to work after illness/ injury on a lower paid / part-time basis. Under this benefit the cover will pay you an appropriately reduced amount to top up your salary.

  • 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 pay out if you are too ill to work and if you are in employment.

  • Our advisers will recommend an amount which suits your individual circumstances, however most insurers pay out a maximum of 60-70% of gross income.

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

  • 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 housepersons policy. Houseperson policy

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

    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 value of any benefits in kind can be covered within the amount of income protection insurance benefit. 

Income protection claims and payouts

Below are some of the popular questions based on claims that our clients have asked us:

How do I claim on my income protection policy?

The following steps illustrate how you claim on your income protection policy

  1. You are too ill to work and see your GP who confirms your diagnosis that you are too ill to work
  2. Contact Future Proof or your insurance company to request a claim form
  3. You will need to send your insurer evidence of your income. P60 and three payslips or tax returns
  1. You will need to send the insurer proof of your medical condition in the form of a doctors/specialists letter
  2. Your deferred period starts from the date you are off work sick.
  3. Your claim will be assessed and paid

As part of our ongoing service, Future Proof can place the claim on your income protection policy for you and deal with any admin that arises. 

  • How long you will wait before receiving a pay out will depend on your chosen waiting period – known as a deferred period. 

    At application stage you will have been offered a 1, 4, 8, 12, 26 or 52 week deferred period. You will have chosen the waiting period depending on how long you thought you would be able to survive without a regular income. 

    Income protection claims are usually processed quite quickly once the insurers have all the information they need to make a claims decision.

  • Income protection can not be assigned to another. It is a personal policy for the insured only and relates only to their health and inability to work.

  • 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 you die. 

    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.

  • On average, an income protection policy will pay out 60% of your gross average income per month.

  • The payout from income protection is 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

  •  If you die some insurers include in their income protection policy’s a death benefit which may be up to 6x monthly income as a lump sum. The income protection policy would cease to pay out its monthly replacement income though. 

  • Your insurer will limit how much your policy will payout. The maximum amount varies between insurers but can be up to to a maximum of 70% of your gross income.

    Although, you can still be paid from the fracture benefit option as a lump sum in addition to your monthly benefit.