What is income protection?
Put simply: it’s an insurance policy that pays out if you’re unable to work for any medical reason – physical or mental, illness or injury. People typically claim on their income protection for things like long-term back pain, serious injuries caused by accident, and stress or depression, but also for other illnesses like cancer, heart attacks and strokes.
The idea is to protect you financially if you couldn’t work for a long time in a longer-term way than sick pay. It prevents you from having to use up savings, take on debts, rely on someone else, or significantly change your lifestyle if you find yourself unable to work because of your health.
How does income protection work?
When you buy an income protection policy, you agree to pay monthly (your insurance ‘premiums’) in return for a tax-free monthly payment (known as the ‘benefit’) if you need to claim. Before starting to receive your income protection payments, there’s usually what’s known as a ‘waiting period’ – or ‘deferred period’. This means your payments don’t start as soon as you become unable to work, but after an agreed period of time.
To buy a policy, you have a number of things to choose, laid out in the table below. All of these factors, along with your health history and smoker status, play a part in determining how much it'll cost you to get covered.
|The benefit amount||This is how much your monthly payments would be if you needed to claim. Insurers typically allow you to cover up to around 55% of your pre-tax income.|
|The policy term||This is how long you’d be insured for – which can be a set number of years, or until retirement. You can make multiple claims during your policy term, if you need to.|
|The benefit period||This how long your insurer would consecutively pay your monthly benefit for. It can either be short-term or full-term, depending on the kind of policy you buy.|
|The policy type||This determines how the benefit amount changes over time – whether it will always stay the same (known as a level policy) or go up over time with inflation (increasing).|
|The premium type||This determines how your premiums change with time – whether they’ll always stay the same or increase at a guaranteed rate with inflation (guaranteed premiums) or be reviewed periodically (reviewable premiums).|
|The waiting period||This is how long you’ll wait for your payments to start after becoming unable to work. Typical waiting periods are 1, 4, 8, 13, 26 or 52 weeks.|
Types of income protection
There are two main types of income protection cover: full-term and short-term. The key difference between the two is how long they'll pay out for when you make a claim (technically known as the maximum 'benefit period'). Beyond that, both types come with a waiting period, and can either be level or increasing policies, meaning the amount paid out stays the same or goes up over time, in line with inflation.
- Full-term income protection
With full-term income protection, the maximum benefit period is as long as the policy term you decided on when you bought the policy. That means: if your policy term is several years, decades, or until retirement, that’s how long an insurer would keep paying your benefit for (so long as you’re eligible to keep claiming). It covers you as many times as you need it, so you could make multiple claims during the life of your policy if you had multiple incidents of being unable to work.
- Short-term income protection
Short-term income protection, on the other hand, is designed to protect you for a shorter, fixed amount of time if you become unable to work for medical reasons. This means there’s a maximum amount of time the insurer will consecutively pay your monthly benefit for per claim – usually up to 1, 2 or 5 years. As with full-term cover, you can still claim more than once during the life of a short-term policy, even if the claim is caused by the same illness or injury as a previous claim (though in this case, insurers will usually require a minimum amount of time to have passed between claims).
This kind of cover is often picked as a cheaper alternative to full-term income protection. It can offer the same amount of protection (as in: the monthly benefit is the same) – it just does so for a shorter amount of time, making it less of a risk to the insurer. While it can be a useful way of bridging the gap if you become unable to work, especially for shorter-term illnesses, accidents or injuries, it’s worth bearing in mind that it might not be sufficient way of covering all of your ongoing needs if you had a longer-term condition.
What's an income protection 'waiting period'?
An income protection waiting period – or ‘deferred period’, as it’s sometimes known – is the amount of time you wait between becoming unable to work and starting to receive your payments. Typical insurer waiting periods include 1, 4, 8, 13, 26 and 52 weeks.
Generally speaking: the longer the waiting period, the lower your monthly insurance premiums will be. But a longer waiting period also means needing to find another way to tide yourself over financially while being unable to work – whether that’s relying on sick pay, savings, other assets or sources of income, or other family members. With a shorter waiting period, your monthly premiums are likely to be higher, but you won’t have to wait as long to start receiving payments.
Deciding on the right waiting period for you will depend on your personal circumstances and household setup. This includes whether or not you have any other means of supporting yourself financially (and if so, for how long) – and whether you have anyone else, like a partner, children, or elderly relatives, also relying on your income, who'd also be affected.
Is there a maximum age for income protection?
Yes – there are age limits for when you can take a policy out and how long it can run for. The maximum age at which you can take a policy out usually falls between 54 and 64, depending on the insurer. The maximum age it can run for is until retirement, which is currently 68 in the UK – although some insurers have started to offer policies beyond 68 as people are tending to work for longer.
What does income protection cover?
Income protection covers loss of income – but only if it's brought about by a physical or mental illness or injury. Most insurers will allow you to cover up to around 50-60% of your pre-tax income.
Some people use income protection to replace the essential part of their missing income – i.e. the bit that pays for fundamental living expenses like the mortgage or rent, bills and food. But the fact is: income protection can be used in whatever way you need. It can cover essentials, non-essentials – or whatever is important in your life. Ultimately, it makes sure you that you and anyone who depends on you financially can keep up with the cost of life if you’re too unwell to work.
How is an income protection claim assessed?
If you need to make an income protection claim, insurers will check that you meet what’s known as their definition of incapacity. This means they'll assess your claim based on your inability to do the main things your job requires you to do. Most insurers call this own occupation definition.
This definition can vary hugely based on the kind of job you do – i.e. whether it requires you to sit down all day vs. do heavy lifting all day – but rest assured: any medical condition that stops you from being able to do your job will be fairly assessed in the context of what you do. Own occupation is the most common assessment definition in the income protection market – and it's also the one which provides the most financial security going into the future.
Own occupation is the most common incapacity definition in the income protection market – and it's also the one which provides the most financial security going into the future.
That said, there are other definitions that could come into play depending on your circumstances at the time of making a claim – like whether or not you're unemployed and, if so, how long for. In a case like this, it’s likely that you’d be assessed against slightly stricter criteria, in which the insurer’s definition of incapacity is based on your inability to do everyday things that aren't necessarily related to your job – like your ability to walk, lift, use stairs, or get in and out of a car. Insurers usually call this ADL definition – which stands for ‘activities of daily living’ – work tasks definition or homemaker definition.
What doesn't income protection cover?
Income protection doesn’t cover any loss of earnings that aren’t brought about by illness or injury. If you became unemployed or were made redundant, for example, you wouldn’t be able to make a claim on your income protection policy.
Your policy may also come with its own additional exclusions. These could either be generic, applying to anyone who takes out the policy (i.e. most insurers exclude inability to work caused by self-harm); or specific to you and your unique health history, added during the underwriting process.
Do I need income protection insurance?
A good way to work out whether or not you need income protection is to ask yourself:
- Do you (or others) rely on your income to pay for essential, everyday living expenses – like your rent or mortgage, bills and food?
- If a health problem stopped you from being able to work and earn money, would you be able to keep up with the cost of life?
- Do you have any sick pay that could keep you going if you were too ill or injured to work – and, if so, for how long?
- Do you have any savings or other assets you could rely on – and again, for how long? And would you want to rely on them?
- Could you cut back temporarily to reduce your household's expenses while you're unable to work?
The answers to these kinds of questions will help you work out whether or not you'd benefit from income protection. It might not be the right kind of insurance for you if your sick pay, savings, or other assets would be enough to live on, or if you have a partner or other family members who could support you financially – even if you were unable to work for a long time. However, if you think there’s a limit to how long any of these alternatives could support you for, then it might well be worth considering income protection to protect some of the earnings you’d lose if you became unable to work.
Could you cope financially if you were too ill to work?
A physical or mental health problem that stops you from being able to work and earn money would leave most people struggling to keep up with the everyday cost of life. To bridge the financial gap created by loss of income, lots of people:
- Rely on sick pay
Of course, some people can rely on sick pay for a short period of time to tide them over should illness or injury stop them from working. That could be either employer sick pay, which typically ranges from 13 to 26 weeks’, or statutory sick pay, which is currently £94/week for up to 28 weeks in the UK – but what happens after that if you’re still too unwell to work? And what if you don’t have any sick pay in the first place?
- Rely on savings or other assets
Similarly, some people may be able to rely on savings or other assets for financial support – but this isn’t ideal, especially if you’re unable to work for a long time, not least because they're usually finite and/or set aside for something else.
Even if you have these alternatives at your disposal, for most people there’s a ceiling on how long they’d last. They enable you to cope financially for a while, but not long-term.
This is where income protection comes in. Not only does it offer a much longer-term financial cushion, but it’s also a cheaper way of protecting yourself, in the long run, than it is to build up savings yourself. It also helps keep your existing savings and assets in tact.
So long as you’re employed in any capacity – whether that’s full-time, part-time or self-employed – you can apply for income protection. But getting covered can be of particular importance to self-employed people because they don’t tend to have sick pay (it's generally only provided by employers). This means time off work for medical reasons can potentially have a quicker financial impact on self-employed people than it would on those who do have sick pay. Income protection can therefore provide a safety net that they'd otherwise be without.
Knowing how much of your income you need to protect, or how long you’d be able to last relying on sick pay, savings, or other means if you were too ill or injured to work, can be tricky to work out. That’s why people sometimes turn to online income protection calculators to work out their needs and get ballpark costs.
The problem being, more often than not, there’s a complicated combination of contextual variables affecting what you'd need, which an automated calculator can’t necessarily account for accurately. Things like your health and lifestyle, household setup, how many financial dependents you have, and even how risk averse you are – all of these could affect what you need, what’s appropriate for you, and how much it’d cost.
When should I think about buying income protection?
As with most health-related insurance products, the younger and healthier you are, the cheaper your premiums will be. But most people don't think about buying income protection until something in their life triggers the need for it. Potential reasons for this are:
|If you have financial commitments or dependents||Taking on a mortgage, getting married or entering a civil partnership, becoming a parent – any of these life events may lead to you having financial obligations you didn’t have before. These could be at risk if your income was missing for medical reasons. Experiencing life changes like these are always a good time to reassess your financial vulnerabilities.|
|If you start contracting or become self-employed||Working as a contractor or being self-employed usually means you’re without the safety net of sick pay – so any time off work due to illness or injury could cause an immediate financial shortfall. For long-term periods of being unable to work, the financial impact could be significant. That’s why this is also a common trigger for taking out income protection.|
|If personal experience raises your awareness or need||There are many other things that could trigger your awareness of or need for income protection, depending on your personal experiences. This could include anything from a significant pay rise to becoming unable to depend on someone else, witnessing a friend/family member becoming too ill or injured to work, or simply reaching a point in life where you’re more able to afford protection.|
The monthly premiums for income protection can vary significantly depending on your circumstances, as well as many other factors relating to the policy itself – including how much cover you buy (namely: what % of your income you want to cover) and what waiting period you go for. Your age, job, health, and lifestyle will also be taken into account during the underwriting process to determine the cost of your insurance policy, along with your smoking status and personal/family health history.
Is it okay to buy cheap income protection insurance?
Making sure you can afford the cover you buy is an important part of the decision-making process, but simply opting for the cheapest cover you can find might not be the best way to make sure your protection needs are sufficiently met. The main thing is to make sure the policy you choose would adequately provide the cover you’d need if you were unable to work for a long period of time – now or in the future. Ultimately, the level of cover you buy (and therefore the price of the premiums) is up to you, but ideally you should weigh up the costs and benefits of having sufficient cover vs. the risks of having a lower level of cover. To work out if income protection is worth it for you: read this.
How to compare income protection policies
Choosing which income protection insurer and policy to go for can quickly feel complicated because there’s so much to consider. This is why people might end up sticking with an insurer they know or already use. But as with any insurance product (and especially long-term ones), it’s always worth making sure you’ve got the best policy for you – the one that best meets your unique needs.
To do this, it’s a good idea to familiarise yourself with some of the typical policy features and exclusions, so you can make an informed choice (our guide to the best income protection companies may also come in handy). Some of the most common income protection features to look out for include:
|Income protection policy feature||What it means for you|
|Back-to-work benefit||You’ll get paid a proportion of your monthly income protection benefit if you can go back back to work, but your illness or injury means you can only work part-time – or that you have to start a new job that pays less. You need to have been making a claim to qualify for this benefit.|
|Benefit guarantee||You’ll get paid a minimum amount per month (usually £1,500, so long as you took out at least that amount), even if your income has dropped since taking out the policy. You normally need to be working a minimum number of hours to qualify for this benefit, which varies from insurer to insurer.|
|Guaranteed insurability||You’ll get the opportunity to increase your cover after certain life events without further underwriting, like getting married or becoming a parent. The list of included events tends to vary per insurer, so it’s always best to check your own policy’s details.|
|International cover||You can still make an income protection claim if you’ve moved to a different country, so long as it’s one of the countries listed by your insurer. Again, check your policy details to see which countries are included.|
And in the table below, we’ve rounded up some of the most well-known income protection insurers to show you how they compare in relation to these features:
|Back-to-work benefit||Benefit guarantee||Guaranteed insurability||International cover|
|Aegon income protection||Included||Included||Included for: marriage or civil partnership, becoming a parent, taking out a new or increased mortgage, and getting a significant pay rise||Restricted|
|AIG income protection||Included||Included||Included for: marriage or civil partnership, becoming a parent, taking out a new or increased mortgage, increasing your mortgage term, and getting a significant pay rise||Limited|
|Aviva income protection||Included||Included||Included for: marriage or civil partnership, becoming a parent, taking out a new or increased mortgage, and getting a significant pay rise||Included for named countries|
|Legal & General income protection||Included||Included||Included for: taking out a new or increased mortgage, getting a significant pay rise, plus review every three years||Included for named countries (benefit capped at 26 weeks if you live elsewhere)|
|LV= income protection||Included||Included||Included for: marriage or civil partnership, becoming a parent, taking out a new or increased mortgage (or increased rent), and getting a significant pay rise||Included for named countries (benefit capped at 26 weeks if you live elsewhere)|
|Royal London income protection||Included||Included||Included for: marriage or civil partnership, becoming a parent, taking out a new mortgage or increased mortgage, and getting a significant pay rise||Included for named countries|
|Zurich income protection||Included||Included||Included for: marriage or civil partnership, becoming a parent, taking out a new mortgage or increased mortgage, and getting a significant pay rise||Included for named countries|
Understanding the differences between income protection and critical illness cover can be tricky, especially as they're both to do with ill health. The main thing to note is that a critical illness policy will cover you for a defined list of illnesses and conditions – which isn’t the case with income protection. While critical illness pays out if you’re diagnosed with one of the specified illnesses in your policy, income protection pays out if you’re unable to do your job for any medical reason, whatever the cause.
Another key difference between the two is in the way they pay out. Critical illness cover pays a lump sum that can be used however you need, helping to alleviate the potential financial repercussions of a diagnosis. Income protection provides ongoing support during your illness or injury via monthly payments.
Without the benefit of hindsight, it's difficult to know which kind of cover is most likely to benefit you in the future. Both products can be life-changing, if and when you need them, but it’s not always affordable to buy both. If you do need to decide between one or the other, it's worth considering which financial safety net would give you more peace of mind to have in place.
You can also read our guide to critical illness cover, or simply check out our quick comparison table for a snapshot of the main differences:
|Income protection||Critical illness|
|Pays out a monthly sum if illness or injury stops you being able to work (after a set waiting period)||Pays out a lump sum if you’re diagnosed with one of the critical illnesses listed in your policy|
|Covers any mental or physical illness or injury that meets the insurer’s definition of ‘incapacity’, leaving you unable to do your job||Covers the illnesses specified in your policy conditions – most commonly claimed for cancer, heart attacks and strokes|
|Protects part of your income so you and any dependents can keep up with the cost of life if your income was missing for medical reasons||Protects you and any dependents from the financial consequences of a serious diagnosis – can be used however it’s needed|
Thinking of these two health-related insurance products as cause-driven and result-based may help. Critical illness pays out based on the cause (being diagnosed with a specific critical illness); income protection pays out based on the result (your inability to work, whatever the medical cause).
Considering the way they pay out can help too: critical illness pays a lump sum that gives you support at your time of need, but no safety net beyond that; income protection pays out a monthly amount to support you throughout the duration of your illness or injury.
The key when choosing between the two is to understand what you’re buying and the risks you’d still face – and make sure you’re content with your choice.
Income protection vs. sick pay
For many people, employer or statutory sick pay would be enough to tide you over any temporary periods of illness or injury that prevent you from being able to work. It’s often more prolonged periods of being off work that can lead to financial strain. Because what happens once your sick pay runs out?
While sick pay is usually capped at a set number of weeks, full-term income protection keeps paying for as long as you need it, until you’re well enough to go back to work. In this sense, it offers much longer-term protection than sick pay. And short-term income protection offers greater protection than sick pay too – as the minimum amount of time it’d pay out for is usually a year (though this could be even longer, depending on the policy you buy).
Life insurance with critical illness and income protection
Which of these policies you need – whether it’s one, two, or all three – depends entirely on your personal circumstances. To work out which kind of insurance you should prioritise, it’s a case of weighing up the risks and benefits of having or not having a certain kind of cover vs. the cost of being covered. What needs prioritising in your life will depend on the level of impact your death or inability to work would have on you and the people closest to you. Our guides to life insurance and critical illness cover may also help.
How do I make an income protection claim?
- Contact your insurer
It’s always best to do this as soon as possible after becoming too ill to work, regardless of your waiting period. In most cases, you’ll need to contact them by phone to provide your personal details and policy number, along with the reason for your claim.
- Provide the required documents
Once you’ve informed your insurer and got the ball rolling, you’ll usually be required to complete a claims form and provide relevant documentation. Each insurer is different and the required documents will depend on the nature of your claim, but this can include things like medical notes (from a GP or other specialist), proof of age (your birth certificate or passport), and proof of income (a P60, payslip or tax return).
- Keep paying your insurance premiums
This is super important. You should always keep paying your insurance premiums even while a claim is in process, or if you know you have an income protection waiting period, because missed premiums may invalidate your policy. The majority of policies will also come with a 'waiver of premium' feature (an add-on that means you may be exempt from payments on medical grounds), in which case you’d likely be refunded any payments made while being unable to work anyway.
As we covered earlier in this guide, your policy will pay out so long as you meet the insurer’s definition of incapacity. This will most likely mean whether you're unable to do the main tasks of your job (if your policy has 'own occupation' definition).
Of course, this relies on you being as honest as possible about your health and lifestyle when you apply for your income protection policy – so the insurer can make a fair and accurate assessment of your claim. If you don’t do that, your claim might be rejected due to what’s known as ‘misrepresentation’.
Last up, if your insurer becomes insolvent, they’ll be protected by the Financial Services Compensation Scheme (FSCS), so you’re covered in that sense too.
Income protection can help cover your essential living expenses (in other words: keeping a roof over your head and food on the table) or simply help you maintain your lifestyle while not being able to work. After all, the cost of life doesn’t go away if you lose your income for medical reasons, but income protection helps you (and whoever else relies on you financially) keep up with it.
This guide is intended for informative purposes only and does not constitute advice.