Income protection insurance pays a regular monthly income if you're unable to work due to illness or injury. Unlike critical illness cover (which pays a one-off lump sum for specific conditions), income protection replaces a portion of your salary for as long as you're unable to work — potentially right up to retirement age.
How income protection works
You choose a monthly benefit amount (typically 50-70% of your gross income — insurers won't cover 100% as there needs to be a financial incentive to return to work). You also choose a waiting period (called the deferred period) — the time between becoming unable to work and the policy starting to pay. Common deferred periods are 4, 8, 13, 26, or 52 weeks.
The longer your deferred period, the cheaper the premium. If your employer pays full sick pay for six months, you can set a 26-week deferred period and only need the policy to kick in after your employer's support ends.
Payouts are tax-free if you're paying the premiums yourself. The payments continue until you're able to return to work, the policy term ends, or you reach retirement age — whichever comes first.
Own occupation vs any occupation
This is arguably the most important detail in any income protection policy. There are typically two definitions of "unable to work":
Own occupation — the policy pays out if you can't do your specific job. A surgeon who injures their hand would receive payments even if they could technically work in an administrative role. This is the better definition for claimants.
Any occupation — the policy only pays if you can't do any job suited to your education and experience. The surgeon with an injured hand might not qualify because they could potentially do other work. This is cheaper but much harder to claim on.
Always try to get own occupation cover if possible. Some policies use "suited occupation" — a middle ground that considers your experience and training. Read the definition carefully before committing.
Short-term vs long-term income protection
Long-term income protection (described above) pays out until you recover or reach retirement. Short-term income protection typically lasts 1-2 years and is cheaper. Short-term policies can be useful if you have some savings to fall back on after the policy ends, but they leave you exposed if you develop a long-term condition.
For comprehensive protection, long-term income protection with an own occupation definition is the gold standard.
What it costs
Premiums depend on your age, health, smoking status, occupation, the benefit amount, and the deferred period. A 35-year-old non-smoking office worker might pay £25-40 per month for £1,500 monthly benefit with an 8-week deferred period. Manual workers and those in higher-risk occupations pay more.
Premiums can be guaranteed (fixed for the life of the policy), reviewable (the insurer can increase them at review points), or age-banded (increasing as you get older). Guaranteed premiums cost more initially but give certainty. Reviewable premiums start cheaper but could rise significantly.
Income protection vs critical illness cover
These are often confused but serve different purposes. Critical illness cover pays a tax-free lump sum if you're diagnosed with a specified serious illness (cancer, heart attack, stroke, etc.). It pays regardless of whether you can still work. Income protection replaces ongoing income when you can't work, regardless of the specific diagnosis.
Ideally, you'd have both. But if you can only afford one, many financial advisers recommend income protection because it covers a broader range of scenarios — including conditions that wouldn't trigger a critical illness claim, like back problems, mental health issues, or injuries.
What about Statutory Sick Pay and benefits?
If you can't work, your employer pays Statutory Sick Pay (SSP) of £116.75 per week for up to 28 weeks. After that, you'd need to claim benefits — Employment and Support Allowance or Universal Credit. These provide a basic safety net but typically far less than your usual salary.
If your employer offers enhanced sick pay (full pay for a period, then half pay), that's valuable but still temporary. Income protection picks up where employer sick pay leaves off and provides the ongoing security that state benefits can't match.
Exclusions and pre-existing conditions
Most policies exclude pre-existing conditions unless they're declared at application and the insurer agrees to cover them (possibly with a higher premium or a specific exclusion). Claims resulting from self-inflicted injury, drug or alcohol abuse, or criminal activity are typically excluded. War and terrorism exclusions are common too, though rarely relevant.
Mental health conditions are covered by most modern income protection policies, and mental health claims make up a significant proportion of total claims. If you have a history of mental health issues, declare them honestly — non-disclosure is the most common reason for claims being rejected.