What income protection cover includes
Income protection insurance doesn't cover everything. Here's a quick guide to what it typically does and what it typically does not. Do remember that every policy is different, so you may find that what we've listed here doesn't ring true for your particular policy. Instead, we've covered general inclusions and exclusions.
Types of events covered
Most income protection policies cover:
An illness that prevents you from doing your job
Injury, including injuries sustained outside work
Long-term disability
According to data published by the Association of British Insurers, common causes of claims in the UK include musculoskeletal conditions, mental health conditions, and cancer. It's worth noting that these are not rare, extreme events. They are conditions that can affect anyone at any stage of working life.
What’s typically excluded
Income protection does not cover everything. Here are some typical exclusions:
Self-inflicted injuries
Undeclared pre-existing medical conditions (diabetes, for example)
Redundancy or unemployment
If you are concerned about losing your job, income protection is not the right product for you. Income protection cover is designed to protect your earnings when injury or ill health prevents you from working. It doesn't cover redundancy.
It’s also worth noting that you can get specific accident-only income protection cover. This will pay out if you’re incapacitated by an accident causing injury, but not usually in the case of illness.
How coverage differs by policy
Income protection insurance policies vary depending on your employment status and how both the insurer and your work define 'incapacity'.
Employed workers, for example, often choose cover based on their 'own occupation'. This means that the insurer pays out if they cannot perform their specific job. So, even if you could theoretically still work in a different role, if you cannot perform your specific, named job role, the policy will still pay out.
However, people who are self-employed or working in the gig economy may find that they're only eligible for 'any occupation' policies - especially if you're looking for a lower-priced policy. If you pick an 'any occupation' policy, you will need to be completely unable to do any suitable work in order to make a claim.
You can also take out income protection insurance if you work part-time, but bear in mind that your insurer will calculate benefits based on your actual earnings, not on the full-time equivalent.
How income protection insurance payouts work
Percentage of income usually covered
Most UK policies cover between 50 and 70 percent of your gross salary. Income protection providers typically try to limit the percentage in order to avoid overinsurance and to keep the policy affordable for self-employed customers.
So, if you earn £30,000 per year, a policy covering 60 percent could pay £18,000 annually, usually split into monthly payments.
Deferred period: How it affects income protection cost
The deferred period is the waiting time between stopping work and receiving payments. Commonly, the deferred period will be 4 weeks, 8 weeks, 13 weeks, or 26 weeks, depending on policy terms and your precise circumstances.
A longer deferred period can help to keep your premiums down. For example, if your employer's sick pay runs for six months, choosing a 26-week deferred period could significantly lower your monthly cost without having a major impact on your income.
Payment frequency and duration
Payments are typically made monthly, much like a salary. You can usually choose between short-term cover, which generally pays out for one to five years per claim, or long-term cover, which pays until retirement age.
As you might expect, long-term policies cost more, but they also provide much more comprehensive protection for serious conditions.
Tax treatment of payouts
If you pay premiums from your post-tax income, any payouts are usually tax-free. However, if your employer funds the policy, payouts may fall under the definition of 'income tax'. If you're not sure what applies in your situation, ask your insurer or check with HMRC.
How much does income protection insurance cost?
There's no fixed cost for income protection insurance. How much an income protection policy costs for you will depend on a range of factors, including your age, occupation, health, and the design of the policy itself. However, in broad and general terms, younger healthy applicants in low-risk jobs may pay between £10 and £30 per month for basic cover, while people in higher-risk occupations or with greater health risks may pay more.
Factors affecting cost
Key pricing factors include:
Age at application
Medical history
Smoking status
Occupation risk level
Benefit amount and term
Deferred period and its impact on premiums
Extending the deferred period is one of the most effective ways to reduce your premiums - so take a longer deferral period if you can. For example, if you have enough savings to cover three months of expenses, aligning your deferral period with that buffer can cut your premium costs significantly. This could save you a lot of money in the long-term.
Self-employed vs employed cost differences
Self-employed people are often more reliant on income protection insurance as they don't get statutory sick pay. Premiums can also be higher depending on the type of work they do, particularly if the role is physically demanding. To get the best prices for their premiums, self-employed people should shop around and compare policies thoroughly before putting down any money.
When to buy income protection insurance
Early career vs later career considerations
Income protection premiums tend to be lower when you are younger and healthier. So, taking out cover early may be a good idea to lock in terms before your risk level rises in insurance terms.
Later in your career, however, you may find that income protection is more useful. You may be earning more than you did when you were younger and have more financial commitments, such as mortgages or dependent children.
Self-employed vs employed timing
Self-employed people can often benefit from arranging cover as soon as their income becomes vital for running their household. Employed workers with strong sick pay schemes, on the other hand, might be better off reviewing their employer benefits before deciding whether or not they need additional financial support in case of illness or injury.
What is the income protection claim process?
If you become ill or injured and cannot work:
Notify your insurer as soon as possible
Provide medical evidence from your GP or specialist
Complete claim forms detailing your occupation and condition
Wait through the deferred period
When they receive your claim, your income protection insurance provider will assess whether or not you meet your policy's definition of incapacity. Once approved, payments will begin after the deferred period ends. You can help to speed up the approval process with clear documentation and prompt communication.
Income protection vs critical illness insurance
Income protection insurance pays a regular monthly income while you are unable to work. On the other hand, critical illness insurance pays a lump sum if you are diagnosed with a specified serious condition. Some people take out both forms of insurance to have an extra layer of support, especially if they're self-employed and don't receive sick pay.
Importantly, neither of these count as permanent health insurance or life insurance.
Do I need income protection insurance?
To work out whether or not you need income protection insurance, ask yourself three questions:
How long could you pay your bills without income?
Would statutory sick pay cover your outgoings?
Does your employer provide extended sick pay?
If losing your income for several months would affect your ability to cover your expenses and keep yourself financially stable, income protection is probably a good idea. Compare providers using MoneyExpert's intuitive comparison tools, and find the perfect income protection insurance policy for you.
FAQs about income protection insurance
Can I claim if I work part-time?
Yes, provided that you can clearly demonstrate a loss of earnings and meet the policy definition of incapacity. Benefits are based on your actual part-time income rather than on full-time figures.
Does income protection cover pre-existing conditions?
Usually not, unless the condition is declared and accepted at the time of application. Non-disclosure of pre-existing conditions can invalidate a claim.
How long does it take to get a payout?
You receive payments after the deferred period ends, once the claim is approved. This can take several weeks, depending on medical evidence and insurer processing times.
Is income protection tax-deductible?
For most individuals paying personally, premiums are not tax-deductible. Payouts are generally tax-free if premiums were paid from taxed income. It is, however, a good idea to check with your insurer, an independent financial adviser, or HMRC.