Losing your income for any reason is stressful. Most of us base our regular outgoings on our regular income, so any disruption to that can cause financial hardship in your household. And if you can't work for a long time, the consequences could be significant and long-lasting.

But if you’re buying insurance to protect yourself against this scenario, it’s important to understand what product is right for you, and what you will and won’t be covered for. When it comes to income protection, you’re only covered if you lose your income for a medical reason, and you’ve been signed off work by a health professional.

What does income protection cover?

Income protection covers loss of income for any medical reason. To make a valid claim on your policy, you need to:

  • Be unable to work for a medical reason
  • Be signed off work by a health professional
  • Meet your insurer’s definition of incapacity

The key thing to remember about income protection is that it really does cover you for any medical reason that leaves you unable to work. This makes it different to something like critical illness cover, another type of insurance that protects you against illness, but only covers you for a specified list of illnesses. You can make a claim on your income protection if you’ve been signed off work for any health issue, whatever the cause – but the most common reasons for people claiming on their policy tends to be:

  • Musculoskeletal illnesses, injuries or conditions – like broken bones or back pain
  • Mental health conditions – like stress, anxiety or depression
  • Serious illnesses – like heart attacks or cancer

Read more about when income protection does (and doesn't) pay out.

What doesn’t income protection cover?

Income protection only covers loss of income for medical reasons. This means:

  • You won’t be able to claim for redundancy
  • You won’t be able to claim for resignation
  • You won’t be able to claim for unemployment

What’s the point of income protection?

The point is to protect yourself against long-term periods of ill health or injury that leave you unable to work. ‘Long-term’ means anything beyond what you could cope with financially on your own, using sick pay or savings. It’s to cushion you against anything longer than that.

We have a habit of thinking it won’t happen to us, but long-term periods of illness or injury could happen to any of us. It might even happen multiple times during our working lives. The most common reasons for claiming on an income protection policy are for things like back pain, broken bones, stress, depression, or cancer.

If your health stops you from being able to earn, the financial repercussions can mount up quickly. Just one period of income loss can set you back and have long-lasting consequences. And the fact is: you can’t control what happens to your health. If you’re made redundant, you can try to find another job. If you can’t work for health reasons, you have less control over when you’ll be fit enough to return to work. That’s why income protection is an important kind of cover to have in place if you value financial peace of mind.

What if I want redundancy or unemployment cover?

If you’re looking to protect yourself against redundancy or any other kind of unemployment, income protection isn’t the right insurance to buy. It only covers you if you can’t work because of an illness or injury. Some insurers do offer products that cover both sickness and redundancy – usually called accident, sickness and unemployment insurance (ASU).

Do you need cover in case of illness? Let's work it out, starting with your age:
  • Income protection doesn't cover redundancy or resignation
  • Income protection only covers loss of income caused by a medical reason
  • You can claim for any medical reason, so long as you've been signed off work by a health professional
  • To protect against redundancy, you'd need to buy a different kind of insurance
What doesn’t income protection cover?
Income protection doesn’t cover any loss of income that isn’t health-related – like redundancy or unemployment. As standard, policies cover you if you can’t work for any medical reason, though there might be an exclusion placed on your policy depending on what you disclose about your health when you take out the policy.
Can I have two income protection policies?
Technically you can have more than one income protection policy, but we tend to advise against doing this. Insurers have a maximum amount they’re willing to insure you for, and you can’t get around that by taking out more than one policy, as they’d factor your existing policy in when trying to take out a new one. There is little benefit to have more than one policy, so you should aim to cover your needs with one.
How long is income protection paid for?
It depends what type of income protection policy you take out. If you take out full-term cover, there is no maximum payment period; it will keep paying until you’re well enough to go back to work, your policy ends, or you retire (whichever happens first). If you take out short-term cover, there will be a maximum payment period of 1, 2 or 5 years; it’ll keep paying until you’re well enough to go back to work or you reach the maximum payment period.
What insurance covers you if you lose your job?
To be covered in case of redundancy, you’d need to take out accident, sickness and unemployment cover (ASU). This kind of cover is not always available on the market, depending on the economic situation.