1. What is income protection?
Income protection is an insurance policy that covers you if you can’t work for medical reasons. If you need to claim, it pays out a monthly amount to help you pay your ongoing expenses while you can’t work.
Insurers will usually cover up to 60% of your income with a policy. For most people, this is enough to make sure the essentials are covered, giving you peace of mind that health-related loss of income wouldn’t leave you unable to cope financially.
2. Who needs income protection?
Most working adults need income protection insurance because most of us would be financially affected if we lost our income.
If you have a partner, children, or other dependents, the need to protect your income could be even greater, because any loss of earnings could impact your ability to support not only yourself, but those you love too.
Income protection insurance can be particularly valuable for couples, parents, single parents, homeowners, renters, and the self-employed. Read more about who needs cover (and why) here.
3. What does income protection cover?
An income protection insurance policy covers you for any medical reason, so long as you've been signed off work by a health professional. This can be any physical or mental illness or injury.
The most commonly claimed-for illnesses on an income protection policy are things like musculoskeletal conditions or injuries, mental health conditions, and serious illnesses like cancer or heart attack.
4. When does income protection pay out?
Income protection pays out if you lose your income for any medical reason. To make a valid claim, you’ll need to have been signed off work by a medical professional and meet your insurer’s definition of incapacity (outlined in your policy documents).
If your claim is valid, you’ll start receiving payments after your waiting period. You agree on a waiting period (or deferred period) when you take out the policy. The longer you can wait to start receiving payments, the cheaper your policy will be.
Income protection insurance won’t pay out if you haven’t been signed off work by a medical professional or you don’t meet your insurer’s definition of incapacity. It won’t pay out before you waiting period has elapsed. And it won’t pay out for any other kind of income loss – like unemployment or redundancy.
5. How much does income protection cost?
The price of income protection insurance will always be different per person because it depends on the cover you need and how much of a risk you are to insure. When buying cover, there are lots of different variables to choose from, which will all affect the price. These include:
- How much cover you buy
- How long you’ll be insured for
- How long your waiting period is
- Whether your cover is full-term or short-term
Your own age, health and lifestyle will also play a part in how much it costs to get covered. As it’s a health-related product, insurers will want to work out how much of a risk you are before covering you. All of these factors will be considered:
- Your personal health history
- Your family health history
- Your height and weight (BMI)
- Your smoking status
- Your lifestyle (e.g. hobbies)
- Your occupation
6. Can I buy income protection if I’ve got a health condition?
You should still be able to buy income protection insurance if you’ve got a health condition, but it depends what it is and how severe it is. Your health condition could make it more expensive to get insured; could mean having an exclusion added to your policy; or could make you ineligible with some insurers.
Whatever your circumstances, it’s very important to be honest about your health when you apply for income protection insurance. Not doing so could lead to not being able to claim or invalidating your policy.
Read more about income protection for people with existing medical conditions here.
7. What’s an income protection waiting period?
All income protection insurance policies come with a waiting period (or deferred period). This is the amount of time you wait between becoming unable to work and starting to receive your monthly insurance payments.
You choose your waiting period when you take out a policy. Typically you can choose from 1 day, 1 week, 4 weeks, 8 weeks, 13 weeks, 26 weeks or 52 weeks. The waiting period you choose depends on how quickly you’d need the policy to start paying out if you couldn’t work.
The waiting period is another thing that affects the price of your policy. The longer you can wait, the cheaper your monthly premiums will be.
8. What’s ‘own occupation’ income protection?
Income protection insurance policies only pay out if you meet your insurer’s definition of incapacity. In other words: their definition of you not being able to work. Different policies come with different definitions – and ‘own occupation’ is one of them.
If your policy has own occupation definition, it means it will pay out if you’re unable to do your own job. You can read more about different definitions of incapacity in our glossary.
9. What’s the difference between short-term and full-term income protection?
When you buy income protection insurance, you choose how long you’d like the policy to pay out for if you need to claim. This is known as the ‘benefit period’ – which can either be short-term or full-term.
A short-term policy comes with a maximum benefit period, usually of 1 or 2 years. This is the maximum amount of time it would pay out for per claim. It stops paying out after that time, even if you’re still unable to work.
A full-term policy doesn’t have a maximum benefit period. It would keep paying out for as long as you’re unable to work. It would only stop paying if you became well enough to work again, you retired, or your policy ended – whichever happens first.
10. Do I need income protection if I’ve got sick pay?
Sick pay gives you some protection against illness or injury, but it will only pay out for a certain number of weeks. Employer sick pay is usually capped between 13 and 26 weeks, while statutory sick pay (SSP) is capped at 28 weeks.
Income protection insurance is designed to protect you if you still can’t work beyond that point. It’s also designed to protect you for a higher amount. SSP currently pays out £96.35/week (true as of September 2021), whereas income protection will pay out up to 60% of your income. This means income protection is much more likely to provide the level of financial support you’d need to cover your essentials if you couldn’t work.
Having sick pay gives you a financial cushion to an extent, but income protection provides more comprehensive protection in case you can’t work for health reasons – and greater peace of mind.
11. Do I need income protection if I’m self-employed?
If you’re self-employed, you won’t have any sick pay. This means being off work because of an illness or injury could affect you more quickly and more significantly than it might do if you were employed.
For this reason, income protection insurance can be an important kind of cover to have in place if you’re self-employed. It gives you peace of mind that you’d be able to keep up with your monthly bills and expenses, even if your health stopped you from being able to earn.
Read more about income protection for the self-employed here.
12. Should I buy income protection or critical illness cover?
Income protection and critical illness cover are both insurance policies that cover you in case of illness – but when and how they pay out is different. Income protection pays out monthly if you can’t work for any medical reason; and critical illness cover pays out a lump sum if you’re diagnosed with one of the critical illnesses listed in your policy.
If you can’t afford both kinds of cover, which one you need depends on which scenario you’d be most affected by, or what kind of financial security you’d prefer. You can read into critical illness cover here.
13. Is income protection the same as payment protection insurance (PPI)?
No, income protection insurance is not the same as PPI. There are two main differences: what they cover and how they’re underwritten.
Income protection covers a proportion of your salary. Insurers will usually cover up to 60% of your pre-tax income with an income protection policy. This is different to PPI, which is connected to specific loan repayments. The amount insurers will cover is related to the monthly repayments you have, not your income.
And income protection is medically underwritten when you take out the policy, which PPI is not. This can make a difference when you make a claim, especially if you had an existing health condition at the time of taking out the policy.
Having an existing condition might affect you when applying for income protection – e.g. making it more expensive, leading to an exclusion, or affecting your eligibility – but once you are covered, you’ll always be able to claim. On the other hand, having an existing condition won’t affect you when applying for PPI, but could affect you when you go to claim.
14. Is income protection the same as accident, sickness and unemployment cover (ASU)?
No, income protection is not the same as ASU. The main differences are in what they cover you for, how long the policies will pay out, and what kind of exclusions they have.
The obvious difference is that ASU covers you if you can’t work due to illness, injury or unemployment, while income protection covers you if you can’t work due to illness or injury. The catch is that ASU policies tend to come with blanket exclusions which can make it tricky to claim when you need to. Income protection, on the other hand, is medically underwritten when you take out the policy, so you shouldn’t encounter problems claiming if you’re honest about your health when you apply.
An ASU policy will only pay out on a short-term basis – usually 1 or 2 years – if you need to claim. Income protection policies can pay out on a short-term or full-term basis. A full-term policy would pay out for as long as you need it to – until you’re well enough to go back to work, you retire, or your policy ends.
15. Is income protection worth it?
Like any insurance, deciding whether income protection insurance is 'worth it' is ultimately down to you and your circumstances. We all hope the worst-case scenario won’t happen to us, but having insurance in place gives us peace of mind in case it does. In the case of income protection, it’s peace of mind that being off work for health reasons wouldn’t leave you unable to cope financially.
This post is intended for informative purposes only and does not constitute advice.