Income protection insurance

Worried about loss of earnings? Compare income protection insurance [1]

What is income protection insurance?

Income protection insurance provides financial cover if you find yourself unable to work for an extended period due to illness or injury, or if you’re made redundant involuntarily.

It helps by paying you a portion of your monthly salary to cover outgoings, like your mortgage and household bills, for a set amount of time. There are both long and short-term options available, depending on your needs.

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Do I need it?

It can give you peace of mind that you and your family would be able to cope financially if you were unable to work through no fault of your own, especially with the cost of living increasing so dramatically.

Consider how you would be able to afford your outgoings without a salary, especially if you have dependants. If you think that you would start to fall behind on bills relatively quickly and have little money saved up, you may want to think about income protection insurance.

Although your employer may continue to pay your income in full if you’re ill or have an accident, it will likely only be for a short period. After which you may receive statutory sick pay lasting for 28 weeks, currently this equates to £99.35 per week. You’re able to claim both statutory sick pay and income protection payments at the same time.

Income protection can give you the breathing room you need to get back to being fully fit or to find a job if you’re made redundant unexpectedly.

What does income protection insurance cover?

There are a few different types of income protection insurance to choose from depending on your circumstances.

You may want a policy to cover a certain outgoing, for instance your mortgage or loan repayments, alternatively you can pick one that deposits money in your account each month to be used on whatever you need. Consider which kind would be most useful to you before applying.

In 2020, 86% of all new income protection claims were paid, with average claim value being £23,380[1]

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[1]According to a 2022 article from the Association of British Insurers, the average value of a paid income protection claim was £23,380 with 86% of new claims paying out.

How does it work?

Typically, you can take out a policy that covers between 50-70% of your pre-tax monthly income for a predetermined length of time, although this can differ between insurers so it’s always best to check.

It will pay out if you’re ill or injured and can’t work for an extended period. An accident, sickness and unemployment insurance policy will also cover you if you’re made redundant (unless it’s voluntary).

Short or long term?

It’s possible to choose between short and long-term options:

Short-term income protection: Will pay out for a set amount of time, usually between one and two years if you’re sick, have an accident or are made redundant

Long-term income protection: This will usually only cover sickness and accidents, not redundancy, but you’ll receive payouts until you return to work,reach retirement age or die, whichever is first. Premiums tend to be higher than short-term options

Types of income protection insurance

Choose from:

Accident and sickness

The policy will pay out if you’re injured or ill and unable to work for an extended period

Accident, sickness and unemployment (ASU)

Provides the same cover as an accident and sickness policy, but also if you’re made redundant

Payment protection insurance (PPI)

Covers repayments on a singular type of debt while you’re off work, for instance your mortgage, a loan or credit card

Mortgage payment protection insurance (MPPI)

Covers your monthly mortgage repayments, so that you don’t fall behind and risk your home being repossessed if you’re not receiving your normal salary

Guaranteed income protection

The price of your premium won’t increase during the term unless you want to change your level of cover. This type of policy is usually more expensive than reviewable options in the beginning, but can work out to be cheaper overall if you need long-term income protection

Reviewable income protection

The insurer periodically reviews your policy and will usually increase your premium as you age. Although it may start off being cheaper than guaranteed income protection, you have no control over how much you’ll be charged as the years go on

Index-linked income protection

Your monthly payout and premium track an index reported by the Office of National Statistics, like the Consumer Price Index, to combat inflation. This means both can increase or decrease depending on the economic situation

How much is income protection insurance?

It will depend on a few different factors, including:

Salary coverage: If you want to cover a higher percentage of your salary, it will be more expensive. For instance, if you want to be insured for 70% of your monthly income rather than 50%

Age: Older policyholders will usually be charged higher premiums than younger individuals

Health: Medical issues that make it more likely that you’ll need to make a claim can raise your premiums

Type of job: Insurers consider certain jobs to be riskier than others. If there’s an increased risk of an accident occurring, you may have to pay more

Smoker status: Smoking causes a range of health problems, so smokers are typically charged more

Deferment period: This is how long you’ll need to wait between your first day off work and receiving your first income protection payment. A longer deferment periods can lower your premium

Length of payment period: Long-term income protection policies will typically charge more than short-term policies because there’s a higher chance that you’ll need to claim over the years

All of this information will be taken into account when you apply for income protection to help the insurer calculate your premium.


If income protection insurance isn’t the right option, you may want to consider:

Life insurance – Your loved ones will receive a payout if you die during the policy term. There are a few different types to choose from, including level-term and decreasing cover

Death in service cover – Some employers offer this type of cover which pays out a lump sum to your family if you die while on the payroll. The amount is usually a multiple of your annual salary

Critical illness cover – This pays out a lump sum if you’re diagnosed with a critical illness mentioned in the policy’s terms and conditions. It may be included with certain life insurance products

Savings – Think about putting money aside from your salary each month as an emergency fund in case you’re unable to work. Try putting it in a separate savings account to discourage you from dipping into in unless completely necessary

Could your savings cover you for long if you were out of work?

Compare income protection

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