Income protection insurance

What is income protection insurance?

Income Protection Insurance, 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 injured and can’t work
  • Income protection covers you until your return to work or until retirement, death or your policy ends or until the limited claim period on 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
  • How much of your income is covered
  • Health
  • When you want your policy to end
  • How long you want to wait before payments are made to you

Payments usually start after any sick pay ends or other insurance stops covering you. The longer you wait for payments to be made the lower your policy premium can be.

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 if you were ill or injured?
  • 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. Check how long your sick pay will last as some employers pay this for more than 12 months.
  • You could survive on government benefits. Government benefits can change at any time and please refer to gov.uk for further 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. Bear in mind you may need their financial support for a long period.
  • You could retire early. If you choose to retire early and receive a pension you will no longer have earnings to protect against you being unable to work.

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, usually a lump sum payment, if you're 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, loan or credit card.

Will Income Protection affect any Government benefit I receive?

Any money you receive from an Income Protection policy may affect your eligibility for Government means-tested benefits. Government benefits can change at any time.

Want income protection cover?

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

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