Income protection insurance is a policy that pays you a regular, tax-free monthly income — typically 50–70% of your salary — if you are unable to work due to illness or injury. Unlike critical illness cover, it pays monthly until you recover, retire, or the policy ends.
What Is Income Protection?
Income protection insurance pays you 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 covers any illness or injury that stops you working — from a broken back to severe anxiety.
It typically replaces 50–70% of your gross salary and continues paying until you recover, reach retirement age, or the policy ends — depending on the type you choose.
Why You Need Income Protection
Ask yourself: if you couldn't work from tomorrow, how long could you keep paying your mortgage?
- Statutory Sick Pay (SSP) is just £116.75 per week — and only lasts 28 weeks
- Many employers offer no sick pay beyond SSP, or it runs out after a few weeks
- Self-employed workers often get nothing at all
- Universal Credit won't cover your mortgage payments and takes 5+ weeks to arrive
Income protection fills this gap. It pays your mortgage, council tax, utilities, food, and everything else your salary normally covers — for as long as you're unable to work.
Types of Income Protection
There are three main types:
- Full income protection — pays until you recover or retire. This is the gold standard and what most advisors recommend. Premiums are guaranteed not to increase.
- Short-term income protection — pays for a limited period (usually 1–2 years per claim). Cheaper, but less comprehensive.
- Accident, sickness & unemployment (ASU) — basic cover often sold alongside mortgages. Generally limited and often poor value.
We always recommend full income protection where budget allows. It provides the most comprehensive safety net and represents the best long-term value.
Understanding the Deferred Period
The deferred period (or waiting period) is how long you must be off work before the policy starts paying. Common options are:
- 4 weeks — ideal if you have minimal sick pay
- 8 weeks — if your employer covers 1–2 months
- 13 weeks — popular choice, balancing cost and cover
- 26 weeks — aligns with the end of SSP, keeping premiums low
Choose a deferred period that matches how long your employer sick pay lasts. This avoids paying for cover you don't need and keeps your premiums affordable.
How Much Can You Insure?
Most insurers let you cover 50–70% of your gross income (before tax). Because the payout is tax-free, this usually replaces close to your take-home pay.
For example, if you earn £40,000 and insure 60%:
- Monthly benefit: approximately £2,000/month tax-free
- This should cover your mortgage, bills, and essential living costs
You can also add indexation so your benefit rises with inflation each year, ensuring your cover keeps pace with the cost of living.
How Much Does It Cost?
Income protection is often more affordable than people expect. Key factors affecting cost:
- Age — younger applicants pay less
- Occupation — desk jobs are cheaper than manual labour
- Smoker status — non-smokers pay less
- Deferred period — longer wait = lower premium
- Benefit amount — higher income = higher premium
A 30-year-old non-smoking office worker earning £35,000 might pay £15–£30/month for a policy paying until age 65 with a 13-week deferred period.
Income Protection for the Self-Employed
If you're self-employed, income protection is arguably the most important insurance you can buy. Without an employer to fall back on, illness or injury means zero income from day one.
Key considerations for self-employed applicants:
- Cover is usually based on your average net profit over the last 2–3 years
- You'll need SA302 tax calculations or accountant-certified figures
- Consider a shorter deferred period (4 or 8 weeks) since you won't have employer sick pay
- Some policies offer day-one cover for accidents with a longer wait for illness
Income Protection vs Critical Illness Cover
They complement each other but work very differently:
- Income protection covers any illness or injury that stops you working — pays monthly
- Critical illness covers specific serious conditions — pays a one-off lump sum
Income protection is broader and pays for longer, but critical illness can clear a mortgage in one go. Ideally, have both — income protection for ongoing bills and critical illness to clear major debts. Don't forget life insurance too for complete protection.
Frequently Asked Questions
- Is income protection the same as PPI?
- No. PPI (Payment Protection Insurance) was a limited product often mis-sold alongside loans. Income protection is a standalone policy that provides much more comprehensive cover — it pays until you recover or retire, not just for 12 months.
- Can I claim income protection for mental health?
- Yes. Most income protection policies cover mental health conditions like depression and anxiety, provided they prevent you from working. This is a key advantage over critical illness cover, which typically doesn't cover mental health.
- What happens if I change jobs?
- Your policy stays with you regardless of employer changes. You're insuring your ability to do your own occupation, and the policy is personal to you — not tied to your employer.
- How long do income protection claims last?
- With full income protection, claims can last until you recover or reach retirement age. Short-term policies typically limit claims to 1–2 years per condition.
Need Expert Advice?
Speak to one of our mortgage advisors for free, personalised guidance.
Get Your Free Quote