Income protection can replace part of your income if illness or injury stops you working.
Instead of paying one large lump sum, it normally provides regular payments. This can help you keep paying your mortgage or rent, household bills and other living costs while you cannot work.
How Does It Work?
You pay a premium for the insurance. If you become unable to work for a reason covered by the policy, you can make a claim.
After an agreed waiting period, the insurer can then pay part of your usual income. Depending on the policy, payments may continue until you return to work, retire or reach the end of the cover.
Income protection usually covers only part of your income rather than all of it.
Do You Need It?
Think about what would happen if illness or injury stopped you earning for several months or even longer.
Would sick pay cover your bills? If not, how long would your savings last?
Income protection may be worth considering if losing your income would make it difficult to pay essential costs such as:
- your mortgage or rent
- energy and household bills
- food
- loan payments
- costs for children or other dependants
However, you may need less cover if you have generous sick pay, substantial savings or another reliable source of household income.
Check Your Sick Pay
Before buying insurance, find out what would happen if you could not work.
Your employer may provide sick pay for a set period. You may also have income protection or another benefit through work.
Check how much you would receive and how long it would last.
This is important because your existing support can help you decide when you would need income protection payments to begin.
What If You Are Self-Employed?
Income protection can be particularly relevant if you work for yourself because you do not have an employer providing sick pay.
Think about how long your business and household could manage if you were unable to work.
However, self-employed income can be more complicated than a regular salary. Check how an insurer would measure your earnings and how much it would pay if you made a claim.
How Much Does It Pay?
Income protection normally replaces only part of your earnings.
Policies commonly cover around 50% to 65% of income, although the amount depends on the policy.
For example, if you normally earn £2,000 a month, the policy would not usually pay the full £2,000.
When comparing cover, check how the insurer works out your income and the maximum amount it will pay.
What Is the Waiting Period?
Income protection does not normally start paying as soon as you stop working.
Instead, there is a waiting period, also called a deferred period. Common periods include 4, 13 and 26 weeks, although other options are available.
Generally, a longer waiting period can make the insurance cheaper.
So, try to match it to the support you already have. For example, if your employer provides full sick pay for three months, you may not need the insurance to start immediately.
How Long Will It Pay?
Policies can provide cover for different lengths of time.
Some are designed to provide long-term payments and may continue until you return to work, retire or reach the end of the policy.
Other products may pay only for a set period.
Check this carefully. A policy that pays for one or two years offers very different protection from one designed to cover a long period away from work.
What Does ‘Unable to Work’ Mean?
This is one of the most important parts of an income protection policy.
Insurers can use different definitions when deciding whether you are unable to work.
For example, a policy may look at whether you can:
- do your own job
- do a similar job suited to your skills and experience
- do any type of work
These differences matter.
A policy based on being unable to do your own occupation can provide different protection from one that pays only when you cannot do any suitable work.
Always check the definition before buying.
What Does It Cover?
Income protection is mainly designed for periods when illness or injury prevents you from working.
Policies can cover a wide range of illnesses and injuries, but the exact terms vary.
Do not assume that every reason for being unable to work is covered. Read the policy terms, including any exclusions.
Does It Cover Redundancy?
Standard long-term income protection does not normally cover losing your job through redundancy.
Other insurance products can provide short-term protection against unemployment in some circumstances.
So, if redundancy is the risk you want to cover, check the policy carefully rather than assuming income protection includes it.
What Affects the Price?
The cost depends on you and the cover you choose.
Insurers may consider factors such as:
- your age
- your health
- your job
- whether you smoke
- the amount of income covered
- the waiting period
- how long payments could continue
- the policy’s definition of being unable to work
A longer waiting period can reduce the premium, while more extensive cover may cost more.
Give Accurate Information
Answer questions about your health, work and circumstances carefully.
The insurer uses this information to decide whether it can cover you, what conditions apply and how much the policy will cost.
Missing or incorrect information can cause problems if you later make a claim.
Check the Exclusions
Policies do not cover everything.
For example, an insurer may place restrictions or exclusions on certain medical conditions depending on your health and history.
The exact terms vary between policies.
So, before buying, check what is covered, what is excluded and how the insurer decides whether you are unable to work.
Income Protection or Critical Illness?
These products do different jobs.
Income protection can provide regular payments if illness or injury stops you working and you meet the policy terms.
Critical illness cover normally pays a lump sum if you are diagnosed with one of the serious conditions covered by the policy.
Therefore, a condition could stop you working without meeting the definition needed for a critical illness payout. Income protection focuses more directly on your ability to work.
Income Protection or Life Insurance?
Life insurance mainly protects other people financially if you die.
Income protection is designed to help protect your income while you are alive but unable to work.
You may need one, both or neither. It depends on the financial risk you are trying to cover.
Review Your Cover
Your needs can change over time.
For example, you might change jobs, receive better sick pay, take on a mortgage or see your income rise.
Review the policy after major changes to make sure the cover still suits your circumstances.
Also, think carefully before cancelling an existing policy. Replacing it later could cost more, and changes to your health could affect the cover available.
Compare More Than Price
A low premium does not necessarily mean good value.
When comparing policies, check:
- how much they could pay
- when payments would start
- how long they could continue
- how being unable to work is defined
- exclusions and restrictions
- whether premiums can change
These details can make a major difference when you need to claim.
Before You Buy
First, check your sick pay, savings and other protection. Then work out how long you could manage without your normal income.
Next, decide which costs you would need help paying and when that help would need to start.
Finally, compare policies on the same basis.
The key question is not simply “How much does it cost?”
It is “What happens if I cannot work?”
Key Points
- Income protection can replace part of your income if illness or injury stops you working.
- Check your sick pay and existing cover first.
- Payments normally start after a waiting period.
- Check how the policy defines being unable to work.
- Standard income protection does not normally cover redundancy.
- Compare the cover, not just the premium.
- Review your protection when your circumstances change.
Important Information
Energility provides general information to help you understand energy, household and business costs, services and ways to save money. Our content is for general information only and is not financial, legal, tax, technical or other professional advice.
Information about financial products, including mortgages, loans and insurance, is also provided for general information and comparison purposes. Energility does not provide personalised financial advice. Whether a product is suitable or available to you will depend on your circumstances, the provider’s terms and any eligibility or affordability checks that apply.
Prices, tariffs, interest rates, fees, insurance premiums, grants, government schemes, regulations and other information can change. Any costs, savings, repayments, premiums, quotations or calculator results shown by Energility are estimates unless clearly stated otherwise. Your actual costs and results may be different.
Before making an important financial decision, taking out a financial product, signing a contract or carrying out significant work, check the latest information and the provider’s full terms. Where appropriate, consider getting advice from a suitably qualified professional.
Energility may receive a commission, referral fee or other benefit from some links, products or services. Where this applies, we aim to make it clear. This does not increase the price you pay unless stated otherwise.
Energility
Learn More. Spend Less.