Income Protection Insurance Explained
Income protection is the cover most people forget, yet you're far more likely to be off work long-term through illness or injury than you are to die during your working life. It pays you a regular, replacement income if you can't work because of ill health, helping you keep up with the mortgage and bills until you recover or retire. This guide explains how much it pays, how the waiting period works, and how it differs from critical illness cover, as general information to help you understand your options.
- ✓Income protection pays a regular monthly income if illness or injury stops you working, not a one-off lump sum.
- ✓It typically replaces around 50% to 65% of your gross salary, you can't insure 100%, as there must be an incentive to return to work.
- ✓You choose a 'deferred period' (commonly 4, 13, 26 or 52 weeks) before payments start, a longer wait means cheaper premiums.
- ✓Long-term policies pay until you recover or retire; short-term ones pay for only 1 to 2 years per claim and cost less.
- ✓It's different from critical illness cover, which pays a single lump sum on diagnosis of a named condition.
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What income protection does
If you can't work because of illness or injury, income protection pays you a regular tax-free income (on policies you pay for yourself) to replace part of your earnings. Unlike statutory sick pay, which is just £123.25 a week and runs out after 28 weeks, it can keep paying for as long as you're unable to work, up to the policy limit.
The deferred (waiting) period
The deferred period is the gap between becoming unable to work and your payments starting. Common options are 4, 13, 26 or 52 weeks.
- ✓A longer deferred period means lower premiums, because the insurer pays out less often and later
- ✓Match it to your safety net: if your employer pays sick pay for 13 weeks, a 13-week deferred period avoids paying for cover you don't need
- ✓If you have little or no sick pay or savings, a shorter deferred period gets money to you sooner, but costs more
Short-term vs long-term cover
- ✓Long-term income protection, pays until you recover, retire, or the policy ends, the most comprehensive (and the type most advisers mean by 'income protection').
- ✓Short-term income protection, pays out for a limited time per claim, usually 1 to 2 years, and is cheaper. Useful on a tight budget, but it won't cover a long illness to retirement.
Income protection vs critical illness cover
People often mix these up, but they do different jobs:
- ✓Income protection pays a regular income for as long as you can't work, due to almost any illness or injury, including mental health and back problems
- ✓Critical illness cover pays a single lump sum on diagnosis of a serious named condition (like cancer, heart attack or stroke), whether or not you're off work, but it doesn't cover most conditions that cause long-term absence
Many people choose income protection for everyday illness and injury, and add critical illness cover for the big one-off shocks. See also our guide to sick pay to understand what your employer must provide first.
Getting it right
Income protection is a regulated product, and the detail (definitions of incapacity, exclusions, whether it pays if you can do any job or just your own occupation) really matters. This guide is general information, not financial advice. For free, impartial help see MoneyHelper (moneyhelper.org.uk), or use an FCA-regulated adviser, check them on the Financial Services Register at register.fca.org.uk.
Get instant help right now
A Citizens Advice appointment can take weeks. Our free assistant is available 24/7 with no appointment, giving you clear, step-by-step answers about your exact situation, what to do next, and the deadlines that matter.
Need to take action? It can draft a ready-to-send formal letter for you (optional, from £4.99).
England, Scotland, Wales & Northern Ireland.
Frequently asked questions
How much does income protection pay out?
Income protection typically replaces around 50% to 65% of your gross salary as a regular income. You can't insure 100% of your earnings, because insurers build in an incentive to return to work. On a policy you pay for yourself, the benefit is normally paid tax-free, and it's designed to cover your essential outgoings like the mortgage and bills.
What is the deferred period on income protection?
The deferred period is the waiting time between becoming unable to work and your payments starting, commonly 4, 13, 26 or 52 weeks. A longer deferred period makes the policy cheaper. A good approach is to match it to your safety net, for example, if your employer pays sick pay for a set period, choosing a similar deferred period avoids paying for cover you don't need.
Is income protection better than critical illness cover?
They do different jobs. Income protection pays a regular income for as long as you can't work due to almost any illness or injury, including mental health and back problems. Critical illness cover pays a single lump sum on diagnosis of a serious named condition, but it doesn't cover most causes of long-term absence. Many people have income protection for everyday illness and add critical illness cover for major one-off events.
Do I need income protection if I get sick pay from work?
Possibly, because employer sick pay usually runs out. Statutory sick pay is only £123.25 a week and lasts up to 28 weeks; even generous company schemes typically pay full salary for a limited number of months. Income protection picks up after that, which is why people often set the deferred period to match how long their sick pay lasts.
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