Income protection insurance

What is income protection insurance?

Income Protection, also known as IP insurance, supports you financially if you’re unable to work because of injury or illness.

What does income protection insurance cover?

Income Protection Insurance covers most illnesses and injuries that stop you working either in the short or long term – however, it doesn’t pay out if you’re made redundant. Here’s how policies usually work:

  • It replaces part of your income if you become ill or disabled and can’t work
  • Income protection covers you until your return to work or until retirement, death or your policy ends - whichever is sooner
  • You can claim as many times as you need to - while the policy lasts

How much does Income Protection Insurance cost?

Your premiums are determined by your policy and individual circumstances. Factors that affect the amount you pay are:

  • Job
  • Age
  • Percentage of income you want covered
  • Health
  • When you want your policy to end

Payments usually start after any sick pay ends or other insurance stops covering you. However, this depends on your policy premiums. The less you pay for your policy, the longer you’ll need to wait.

How much does income protection payout?

Income protection pays out a percentage of your earnings, usually between 50% and 70%  -- and all payments are free of income tax. 

You can sometimes get a policy that pays out a higher percentage of one portion of your salary, and less on anything above that. 

How do I know if income protection insurance is right for me?

Here are some things to consider before taking out a policy:

  • What would happen if you got ill and couldn’t afford to pay the bills?
  • If you’re employed, do you have sick pay to fall back on -- and how long is this paid for?
  • If you’re self-employed, what would you do if you couldn’t work for any reason?
  • Can you afford the level of cover you’ll need? You need to set premiums at an affordable level, but also make sure the policy will cover your bills if you do make a claim.

Who may not need Income Protection

Depending on your situation, Income Protection isn’t right for everyone. This includes if:

  • Your sick pay could cover you. This is especially good for packages with an income for 12 months or more.
  • You could survive on government benefits. Income protection could affect your government benefits – see below for more information.
  • Your savings can support you. Remember that your savings might need to see you through a long period.
  • Your partner or family could support you. Especially if your partner's income could cover all your expenses.
  • You could retire early. If you’re unable to return to work, you could take your pension early.

What’s the difference between income protection and critical illness insurance?

These are two very different types of cover. Income Protection Insurance pays a percentage of your gross salary as a regular payment until you can return to work. 

Critical Illness Insurance provides some financial help if you are diagnosed with a critical illness that’s covered in your policy. These policies don’t generally pay out if you die and have no cash value at any time.

Is income protection insurance the same as PPI? 

No – these are two different things. While Income Protection pays you a percentage of your salary if you’re unable to work due to illness or injury, Payment Protection Insurance (PPI) covers the repayments on a specific debt, such as a mortgage.

Will Income Protection affect any benefits I receive?

Any money you receive from an income protection policy may affect benefits calculated on your regular income. If you're unsure how this could affect you, speak to a financial adviser before taking out a policy.

Want income protection cover?

Take a look at our cover in more detail and find out how to apply.

Life articles

Take a look at our latest news and guides.