Income Protection Insurance

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What is Income Protection Insurance?

Income protection insurance acts as a financial safety net should you ever become too ill to work. It can help to replace some or all of your income over either a short or long period, with some policies covering you for as long as it takes you to return to work or retire.

An income protection insurance policy can be taken out by both self-employed and salaried workers, so if you have concerns about the amount of sick pay you may receive after illness or injury, income protection is worth looking into.

Why take out income protection?
Household Income

If you're providing for your family, then loss of income can be devastating. Income protection will help ensure there's always some money coming in.

bills and debts
Bills and Debts

There are specialised policies available for mortgage payment protection, for example, but income protection generally can help you make sure you can keep up with any regular outgoings.

self employed

If you're self-employed, then you won't be benefitting from a company sick pay policy. The right self-employment income protection policy can help if you fall ill.

Who needs income protection?


Anyone who has an income can benefit from income protection insurance, but not everyone needs cover. To figure out whether taking out a policy is right for you, consider whether the following apply to your financial situation:

·        Your savings would not be enough to cover your living costs if you were too ill to work

·        You are only entitled to statutory sick pay (SSP), which is not enough to cover your expenses

·        The sick pay your employer offers would not be enough to cover your outgoings, or only covers short-term absences

·        You’re self-employed and therefore do not receive sick pay

·        You don’t already have sickness or injury cover as part of a different insurance package

If you identify with any of the above, income protection insurance could provide you with financial security should the unexpected come to pass. Regardless of whether you have dependants, a loss of income could put you in a difficult financial situation, especially if you’re unable to work for many months.

How does income protection work?


Unlike many other types of insurance, income protection insurance policies typically provide you with regular monthly payments as opposed to a one-off lump sum. This is because they’re designed to help you cover your living costs when you no longer have your wages to rely upon.

How much money will I receive? Most policies will cover a certain percentage of your monthly income, but exactly how much will depend on the policy you choose and the amount of money you need to cover your expenses. Some policies will match your lost income completely, but this type of cover is usually more expensive. Keep in mind that payments will usually be tax free, so you may not need your cover to match your salary exactly.

How long will I receive the payments? Income protection payments will usually continue as long as you need them. This means that if you are unable to return to work for many years, you will still have a reliable income to cover your bills. However, some policies may have limits on how long they will cover you or may reduce your payments after a certain period of time.

Will I receive my money straight away? You can expect to have a waiting period with income protection insurance. This means that you won’t start receiving payments until a month or more has passed after the start of your illness. If you know you have enough savings to last you a few months, or your employer will continue paying you, it’s worth considering longer waiting periods to lower your premiums.

What Will Income Protection Insurance Cover?


You can expect income protection policies to cover most instances where you are unable to work due to either an illness or a physical injury. Some types of insurance may also cover you if you’re made redundant, though this type of cover usually costs extra and typically won’t provide you with indefinite payments. Accident, sickness and unemployment insurance will cover both scenarios, giving you a more complete level of protection.

What Type of Income Protection Insurance Do I Need?


Policies are typically broken down into two main categories: long and short term income protection insurance.

Short term income protection is designed to cover you for less serious conditions that will result in a temporary break from working. For example, if you needed to have an operation that would mean bed rest for a number of weeks.

Long term income protection will protect you if anything more serious happens or you become disabled. These policies will usually continue to pay out until you reach retirement, whereas short term policies may only last between two to five years.

How Much Does Income Protection Insurance Cost?


Most income protection policies come with fixed monthly premiums, but the cost of these will depend on a wide range of factors, such as:

·  Income: The higher your income, the higher your premiums are likely to be. This is because your insurance provider will have to pay out more money if you make a successful claim.

·  Current Job: If your job poses a high risk to your health and wellbeing, you may be seen as more likely to become injured or unwell, which will be reflected in higher premiums.

·  Waiting Period: Having a waiting period of a few months will usually lower premiums, so if you don’t need your money right away, this can be a good way to lower your costs.

·  Health Conditions: Having pre-existing health conditions or certain illnesses in your family medical history could increase your policy costs. However, these costs can sometimes be mitigated by making positive lifestyle changes.

·  Policy Term: Short-term cover is usually cheaper than long-term, but some long-term policies can be customised so that your cover reduces over time, which may lower your premiums.

Compare Income Protection Insurance


There’s a lot to consider when it comes to choosing income protection insurance. From the amount of cover you need to the term and waiting period, it’s important to explore all your options before making a decision. Here at Money Expert, we can help you find the right policy for your needs with our in-depth comparison service. Get a quote today or get in touch for more information.



Will income protection insurance cover losing my job?

Depending on the policy you have, income protection insurance might pay out if you lose your job. Accident and sickness cover will only pay out if you can no longer work due to a health-related reason, so you need to make sure you have unemployment or redundancy cover added on or as a separate policy.

Keep in mind that unemployment cover typically doesn’t pay out if you accept voluntary redundancy or lose your job due to misconduct or performance issues. You also won’t be able to take out a policy once you’ve already been informed that you’re being made redundant.

My salary increased, can I update my income protection cover?

Most of the time, you should be able to update your income protection cover when your salary increases. However, keep in mind that your premiums may also increase if you’re taking out more cover. Simply inform your policy provider of your new circumstances and they can help you to calculate everything you need to know.

Can I claim on my insurance while receiving sick pay?

Income protection insurance is usually designed to pay out when you no longer receive sick pay. Some policies may allow you to claim both your sick pay and your insurance payouts, but they may also adjust the amount you receive. If you know your employer will pay you for a number of weeks or months while you’re off sick, it can be worth adding this as a waiting period for your income protection insurance policy instead of claiming both at once.

Does income protection insurance cover mortgage payments?

Your income protection insurance payouts can be used on any expenses you have. If you have a mortgage, make sure you factor this into your calculations before deciding on how much cover you need.

However, you could also take out mortgage protection insurance if you’re particularly concerned about keeping on top of payments. This type of cover only pays your monthly mortgage payments and wouldn’t help you pay your bills or general expenses.

Will income protection insurance pay out to my family if I die?

No, income protection insurance is designed to replace your income while you’re still alive so that you can continue to support yourself and your family. To make sure your family is financially stable after you die, you may want to consider taking out life insurance, which can pay out a lump sum to your dependants after your death.

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

Yes, income protection insurance is available for the self-employed. To get the right amount of cover, you will need to provide your insurer with evidence of how much you earn on a monthly basis.

It’s worth noting that if you’re self-employed, you will be exempt from unemployment and redundancy cover, as you are working for yourself. However, you will be eligible for illness and injury cover.


Last reviewed: 1 May 2024

Next review: 1 June 2024