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About income protection insurance

There are a number of options available to you when looking at the possibility of protecting your income for when you can’t work due to illness or injury.

This type of cover can be extremely useful and provide you and your family with financial security in the event of extended absence from work for employed and self-employed people. Many people don’t have any support form their employers if they can’t work due to sickness or often people’s provisions will only last for two to three months before they will struggle to pay bills.

An income protection insurance policy will pay out a tax-free income to you every month while you can’t work to pay your bills, rent, mortgage payments, and other expenses.

A picture of a stopwatch

60-Second Summary – Income Protection Insurance Guide UK 2024

Income protection insurance is a useful policy that will pay out a monthly cash income to you if you cannot work due to illness or injury. This can act as a financial lifeline, helping you to pay all your usual bills while you recover and get back on your feet.

  • Income protection policies will pay out if a doctor or GP signs you off sick from work for at least 4 weeks. Your policy will also normally include a deferred (waiting) period before you begin receiving payments.
  • Income protection can be helpful for most people, but especially for those who are self-employed who wouldn’t have access to the same support if they couldn’t work (e.g. Statutory Sick Pay).
  • There are several types of income protection insurance to choose from, so you should think carefully and choose the policy that will work best for you.
  • If you’re not sure if income protection is right for you or how to buy a policy, it can be helpful to get some free advice from an income protection insurance expert.

If you are unable to work due to sickness or if you have been injured, then an income protection policy will pay out a monthly amount to you to pay for household bills, rent, and mortgage payments.

The amount is usually a percentage of your gross monthly income (before tax) to cover outgoings and debts so you don’t suffer financially as well.

Income protection insurance statistics UK

According to the Association of British Insurers (ABI), the average pay out for income protection insurance in the UK in 2020 was £22,000. Of the claims that were made, an incredible 98% were paid out which is the same as 2019.

  • 9% of UK adults have income protection
  • 16% of UK adults have private medical insurance
  • 41% of UK adults have life insurance

How do I get an income protection insurance quote?

It couldn’t be easier to get a FREE quote for income protection through our team of experts.

To get the best price and the best cover for income protection insurance we simply need to know:

1. Your age and occupation – the younger you are, the cheaper your premiums will be and your premiums will also be based on your job.

2. Monthly benefit and term – how much do you want to receive every month if you can’t work and how long do you want the cover to last for.

3. Health and lifestyle – are you aware of any pre-existing medical conditions or do you have other lifestyle disclosures (e.g. smoking, drinking, activities, or sports).

4. Type of cover – are you looking for a short-term or long-term policy and do you have any specific cover requirements.

Can I have income protection insurance?

Often people can be put off applying for income protection insurance because they don’t think they can get it or it’s too expensive.

Income protection is actually a lot more affordable than you might think and it’s often quicker to apply for.

  • Are you over the age of 18?
  • Are you a UK resident?
  • Are you employed or self-employed?

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Best income protection insurance?

There are 3 main types of income protection insurance in the UK that are specifically designed to fit different needs and budgets.

1. Income Protection Insurance (short-term and long-term) pays you a monthly income while you are off work due to an accident or sickness. If you are signed off work by a doctor, your income protection policy should payout.

2. Personal Accident Insurance pays out if you are injured through an accident such as a sports injury or car accident. This type of cover is designed to provide you with financial support while you are off work or in hospital.

3. Sick Pay is another simple type of cover that provides you with a monthly income for a period of up to 12 months. This is an easy policy to buy as it usually does not require any medical information or checks.

Here are just a few things that you might need to know if you’re considering an income protection policy. If you need any more information, you can speak to one of our team of income protection EXPERTS.

If you are employed or self-employed then you might want to consider income protection cover. Your employer will usually pay you for a short period of between a week and 6 months, depending on your job.

If you need to be out of work for longer than this then you’ll need income protection to pay your bills. Most people will need income protection at some point in their working lives for one reason or another.

Income protection is available for a range of different occupations including:

What are the most common reasons for income protection claims?

According to insurance provider LV=, the TOP 3 income protection claims are:

1. Mental health (29% of claims)

2. Musculoskeletal (25% of claims) *accidental injury and fractures

3. Cancer (15% of claims)

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How does income protection insurance work?

There are several things to remember with income protection and it is a very simple policy to understand.

Ultimately this cover will pay out a monthly income (tax free) to replace any lost earnings due to sickness or injury.

To qualify to claim you usually just need to be signed off work by your doctor or GP for a period of time (normally 4 weeks or more).

What does income protection insurance pay for?

You can use your monthly income protection benefit to pay for the standard outgoings that you would normally be paying. The policy is designed to pay out an equivalent amount to your monthly salary (after-tax).

Normal outgoings that you can cover include:

  • Mortgages
  • Rent
  • Debts (e.g. loans, credit cards, etc.)
  • Bills (e.g. utilities)
  • School fees
  • Cost of living (e.g. food, clothes etc.)

How much is income protection insurance?

The cost of an income protection policy can vary dramatically depending on what you need and the amount of cover. Premiums for younger people are always going to be lower as well because the risks of claims are considered to be less.

Generally, there will be a policy to suit your budget and your needs as long as you are realistic about how much cover you need.

There are a few tricks to help make income protection more affordable:

Deferred periods: these can be thought of as a “waiting period” before your cover starts to pay out. Make sure that you consider how long you could manage financially if you were unable to work. Shorter deferred periods will always cost more because the cover kicks in sooner but that isn’t always the best option.

  • Payment periods: you can select from several options including 12months, 24 months, or long-term cover. Shorter-term payment policies are cheaper than longer-term ones and can still provide adequate protection
  • Shorter-term: you can also change the term of the policy so you might want to consider how long you’ll need the cover. Most people will want to cover ideally to retirement age but that’s not always affordable or possible
  • Age rated: it is also possible to get a policy that is rated by age. This means premiums start lower and then increase as you get older. This type of cover can be cheaper, to begin with, but you need to check what the premiums increase to
  • Change insurer: some insurance companies offer cheaper premiums than others based on age, level of cover, and term. You could get a lower premium by searching with multiple insurers or speaking to a whole of market broker

Can I get income protection insurance with a medical condition?

YES – most insurers offer income protection to people with pre-existing medical conditions. Income protection is an underwritten policy that is the same as other forms of life insurance and personal protection.

You can usually get income protection with most pre-existing medical conditions as long as your symptoms aren’t too severe.

There are some circumstances where income protection might not be available or where an exclusion might be applied to your cover. This can be because of several reasons and if you get declined then it’s always worth checking with a medical conditions expert.

We have helped many people find the right income protection cover with medical conditions including:

If you apply for an income protection policy and you have a medical condition, then you might be offered cover with an exclusion. The same applies if you have a dangerous job or carry out any hazardous activities.

This is simply where the cover will pay out for most things, however, your exclusion will not payout. Exclusions can also vary from one insurer to another so it is worth checking a few different companies if you are offered this.

Will income protection insurance payout?

According to recent statistics from the Association of British Insurers (ABI), in 2019 there were (individual and group income protection):

  • Income protection claims paid: 27,275
  • Percentage of new claims paid: 87.2%
  • The total value of claims paid: £669,397,000
  • The average value of claims paid: £20,425.41

Can I have income protection insurance if I’m self-employed?

YES – income protection cover is possibly even more important for people who are self-employed (including contractors). You can take out a policy if you are self-employed in exactly the same way as someone who is employed.

Your regular income will just need to be proved by your accountant or your latest accounts to verify your earnings. Self-employed earnings can of course vary more than that of employed people and policies will usually take this into account.

When taking out a new policy you should think about what your average income is, including salary, and dividends.

It is possible to pay your income protection premiums through your company, however, there is no real tax advantage to this. You should speak to your accountant if you are unsure about this and get proper advice before you do anything.

There are some policies that can be paid through your business as a benefit from a selection of insurers. These policies tend to be very specific and designed for a certain purpose, so they might not suit your needs.

NO – you shouldn’t have to pay any tax on your income protection claims as this is not a regular income from employment. You’ll simply make your claim to your insurance company and then they will pay the benefits tax-free directly to your bank account.

Income protection is treated the same as life insurance and critical illness insurance cover in terms of tax rules. There should be no taxable element to the benefit you receive unless there is a very specific reason for this.

If you are unsure about this then you should speak to your accountant and get proper tax advice.

How long will income protection insurance payout for?

There are two main options for payment periods with income protection, commonly known as short-term and long-term.

1. Short-term income protection usually pays out for either 12 months or 24 months (premiums for 24 months are usually higher)

2. Long-term income protection will usually have higher premiums than short-term. You should be aware, however, that your cover will payout for the full term of the policy. For example, if you claim in year 3 of a 20-year policy then you could receive a payout for up to 17 years.

Your claim will also payout from the start of the claim until you are fit to return to work. Some insurers also offer a benefit that can help you to return to work from longer-term illness of injury.

If you’re not sure if income protection is right for you CRITICAL ILLNESS COVER works similarly and could be worth considering. Instead of monthly payments to supplement your income, you receive a cash lump sum on diagnosis of a serious illness/medical condition.

Need Income Protection insurance advice?

If you are thinking about buying income protection and you need some advice then you can contact our experts for free on 0800 009 6559 or click here.

Resources

Safe Workers – Average sick days in the UK 2022 

Statista – Sickness absence rate in the UK 1995-2021 

Citizen’s Advice – Check if you can get sick pay 

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Is it worth having income protection insurance?

Income protection insurance can be extremely useful and very important for anyone who is unable to work due to sickness or an injury (e.g. from an accident, sports, work etc.). Essentially, income protection insurance pays out monthly to replace any lost earnings while you are unfit or unable to work.

Payments for income protection insurance can be used to pay your mortgage, rent, other credit commitments, food bills, utilities and other regular outgoings.

Common myths about income protection insurance:

  • Income Protection Insurance won’t pay out
  • Statutory Sick Pay (SSP) from the government will cover me
  • The cost of Income Protection Insurance is high
  • People with medical conditions can't have Income Protection Insurance
  • My employer will help support me
What does income protection insurance cover?

As a rule of thumb, income protection insurance will pay out a regular monthly tax-free payment to you if you can’t work and you are signed off by a doctor. You will need to provide supporting evidence from a medical professional such as your GP and proof of income from your employer or accountant.

Example: Sarah was involved in a car accident which resulted in a serious back and neck injury that prevented her from being able to drive for 6 months. She was able to claim on her income protection policy after 4 week for the remaining 5 months until she was able to move and drive again. She would also usually be able to claim for rehabilitation and physiotherapy to help her to return to work as planned.

Do I need income protection insurance for a mortgage?

Income protection insurance and mortgage life insurance are not compulsory for getting a mortgage in the United Kingdom. Some mortgage lenders might ask for you to get insurance as a condition of the mortgage offer in some circumstances but this is rare.

It is strongly recommended to have insurance to protect you and your family if you have a mortgage and other credit commitments. If you consider what the financial impact would be if you were unable to work due to accident, sickness or injury, and even if you were to die.

Most common mortgage protection insurance policies:

  • Buildings insurance
  • Mortgage life insurance
  • Income protection insurance
  • Critical illness insurance
  • Mortgage payment protection insurance (Accident, Sickness & Redundancy
Is income protection insurance tax free?

Payments from an income protection insurance claim are almost always tax-free, apart from some business income protection policies. This is because you pay tax on the premiums for personal income protection insurance at source (i.e. the premiums are paid from your net monthly salary).

The same applies to life insurance premiums and payouts, effectively you have already paid tax on the premiums that you have paid. There are some other possible tax implications that may apply in certain circumstances so you should seek proper advice or guidance if you have any specific questions.

Which is the best income protection insurance UK?

It’s very difficult to say overall which income protection insurance policies or providers are the best, simply because there are so many different options and types of cover. You can get income protection insurance from an even wider range of insurance providers than life insurance, so your choice is even greater.

The most common income protection insurance policy is:

  • Short term income protection insurance (24 months)
  • 4-week deferred period (pays out after 1 month of absence)
  • Guaranteed premiums (fixed premiums)
  • Underwritten income protection insurance

There are several other cover options for income protection insurance (e.g. long-term, age rated, reviewable premiums, guaranteed acceptance and 0 weeks to 12 months deferred periods).

The top 5 income protection insurance providers according to research by Defaqto are:

  1. Aviva (Trustpilot score: 4.0 out of 5.0)
  2. British Friendly Society (Trustpilot score: 4.1 out of 5.0)
  3. LV= (Trustpilot score: 4.5 out of 5.0)
  4. Royal London (Trustpilot score: 4.0 out of 5.0)
  5. Shepherds Friendly (Trustpilot score: 4.3 out of 5.0)
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