Income Protection

Income protection insurance is a policy that pays you a monthly, tax-free income if you become unable to work because of illness or injury. Rather than replacing your full salary, most policies pay out somewhere between 50% and 70% of your gross income, giving you a financial buffer while you're off work.

Payments start after your chosen waiting period (sometimes called a deferred period) has passed, and continue until you're able to return to work, you recover, you reach the end of your chosen benefit period, or you reach your policy's retirement age, whichever comes first.

It's important to understand what income protection insurance does not cover from the outset: standard policies do not pay out if you lose your job through redundancy or resign voluntarily. That's a different, more limited type of cover called Accident, Sickness and Unemployment (ASU) insurance, which we explain later in this guide.

Also known as Permanent Health Insurance (PHI)

You may still see income protection insurance referred to as Permanent Health Insurance, or PHI. It's the older name for the same type of policy, and some insurers and older policy documents still use it. If you've searched for PHI income protection, you're looking at the same product described throughout this guide.

Income protection insurance works alongside any savings or sick pay you already have. Here's how a claim progresses from taking out a policy to receiving your first payment.

The waiting period you choose has a direct effect on cost and risk. A four-week waiting period gets you paid sooner but usually costs more, while a longer waiting period, such as six or twelve months, usually costs less but means you need a bigger savings buffer or longer sick pay entitlement to fall back on in the meantime. Read our income protection deferred period explained guide for a closer look at how to choose the right length for your circumstances.

Understanding exactly what's included, and what isn't, matters just as much as understanding how much a policy pays out.

What's typically covered

Most income protection policies cover illness and injury that stops you working, including many mental health conditions, subject to underwriting at application. Depending on the type of policy you choose, cover applies if you can't do your own specific job (own-occupation), or only if you can't do any job or one suited to your skills and experience (any or suited-occupation). We explain the difference in detail in the next section.

What's typically not covered

Standard income protection insurance does not cover redundancy or voluntary unemployment. If you're made redundant or resign, a standard policy will not pay out, even if you're actively looking for work. This is one of the most common misunderstandings about the product, and it's why searches for income protection insurance and redundancy, or income protection insurance for job loss, are so common.

If you specifically want cover for redundancy, you'd need a different, shorter-term product called Accident, Sickness and Unemployment (ASU) insurance, which typically pays out for a limited period, often 12 to 24 months per claim, and usually excludes voluntary resignation. If you've already lost your job, Citizens Advice has practical guidance on your rights and the benefits you may be able to claim.

Pre-existing conditions are also typically excluded or subject to a premium loading, and most policies exclude claims arising from self-inflicted injury or from hazardous hobbies you haven't declared and had accepted by the insurer.

Not all income protection policies work the same way. The definition of "unable to work" used by your policy, and how your premium is structured, both make a big difference to cost and to how easy a future claim might be.

Own-occupation cover

Own-occupation policies pay out if you can't do your own specific job, even if you could technically do a different type of work. This is the most comprehensive definition and generally the easiest to claim on, which is why it usually carries the highest premium. It's particularly relevant for people in specialised or physical occupations, where losing the ability to do that specific job would be a significant financial blow even if other work were technically possible.

Any-occupation and suited-occupation cover

Any-occupation policies only pay out if you're unable to do any job at all. Suited-occupation policies sit in between, paying out if you can't do a job reasonably suited to your skills, training, and experience. Both are usually cheaper than own-occupation cover, but harder to claim on, because the insurer will assess whether you could realistically do some other type of work, even if it's not your usual role.

Short-term income protection (Accident, Sickness and Unemployment)

Accident, Sickness and Unemployment (ASU) cover, sometimes marketed as short-term income protection, is a different product. As well as illness and injury, it typically includes limited redundancy cover, but payments are usually capped at 12 to 24 months per claim, and voluntary resignation is usually excluded. It's worth understanding this distinction clearly if job security, rather than long-term health, is your main concern.

Guaranteed versus reviewable premiums

With guaranteed premiums, your cost stays the same in real terms for the life of the policy, aside from any built-in age-related increases you agreed to at the outset. With reviewable premiums, the insurer can increase your cost at set review points if their overall claims experience changes, even if your own circumstances haven't. Guaranteed premiums usually cost more from day one but offer more certainty over the long term.

Group income protection

Some employers provide income protection as a workplace benefit, known as group income protection. It works differently from a personal policy in some important ways, which we cover in a dedicated section below. If you're a company director or senior employee, it's also worth reading our guide to executive income protection, which explains how cover can be arranged through a limited company.

Certain occupations also face specific underwriting considerations. If you work in education, for example, see our guide to income protection for teachers for more detail on how the profession is typically assessed.

No two income protection quotes look the same, because premiums are based entirely on individual underwriting. Rather than publish figures that quickly become out of date or misleading, it's more useful to understand the factors that move your premium up or down.

Because pricing depends on how each insurer weighs these factors for your specific circumstances, the same person can be quoted very differently by different providers. This is one of the main reasons to compare across a wide range of insurers rather than approach a single provider, since occupation-class underwriting in particular varies significantly between insurers.

Searches for the cheapest income protection insurance UK are common, but the cheapest policy on paper isn't always the best value. A cheaper any-occupation policy with a long waiting period might leave you exposed exactly when you need cover most. Speak to an advisor to compare options that balance cost against the level of protection you actually need.

This is one of the most searched questions about income protection insurance, and it deserves an honest answer rather than a sales pitch. There's no universal answer: whether it's worth it depends on your sick pay entitlement, savings, dependants, and fixed costs.

The case for income protection insurance

• It replaces part of your income if illness or injury stops you working for an extended period, when Statutory Sick Pay alone would leave a significant shortfall for most people
• Cover can continue for years, or to retirement age, rather than the few weeks or months many employer sick pay schemes offer
• It can help you keep up mortgage, rent, and other essential commitments during a long period off work
• Self-employed people have no employer sick pay to fall back on at all, making the case for cover often stronger

The case against, or reasons to think twice

• Premiums are an ongoing cost, and if you already have a strong sick pay entitlement and a healthy savings buffer, the cover may add less value
• Reviewable premiums can increase over time, even if your own health and circumstances haven't changed
• Pre-existing conditions are typically excluded, so if you already have a significant ongoing health condition, cover may be limited or unavailable for that specific issue
• Any-occupation and suited-occupation policies can be harder to claim on than the definition might first suggest

MoneyHelper and industry bodies such as the Income Protection Task Force have long highlighted a gap between the number of working-age adults with meaningful savings to fall back on and the much smaller number who hold an income protection policy of their own. The exact figures vary between surveys and change over time, so if you want current data, MoneyHelper's guidance on income protection insurance is a good starting point.

You may have seen income protection insurance discussed alongside Martin Lewis or Money Saving Expert. We haven't seen any specific, dated guidance from either endorsing a particular product, and we wouldn't imply otherwise. If you want their current view, it's worth reading their published guidance directly.

A simple decision checklist

• How many months could you cover your essential outgoings using savings and any sick pay entitlement alone?
• Do you have dependants who rely on your income?
• Do you have a mortgage, rent, or other fixed monthly commitments that would be difficult to maintain without your usual income?
• Are you self-employed, with no employer sick pay safety net at all?

If your answers point to a short runway and significant fixed commitments, income protection insurance is worth serious consideration. If you have a substantial savings buffer, strong employer sick pay, and few dependants, the case is less clear-cut, though it's still worth getting a personalised view from an advisor.

Income protection insurance is one of several protection products, and many people need a combination rather than a single policy. Here's how it compares to critical illness cover, life insurance, short-term Accident, Sickness and Unemployment (ASU) cover, and Statutory Sick Pay.

Critical illness cover and income protection insurance are often confused, but they solve different problems. Critical illness cover pays out once, on diagnosis of a listed condition, regardless of whether you go back to work. Income protection insurance pays out repeatedly, for as long as you remain unable to work, but only for conditions that actually stop you working, not simply on diagnosis.

Life insurance solves a different problem again: it protects your family financially if you die, not if you're unable to work. Many people hold life insurance and income protection insurance together, alongside critical illness cover, as complementary rather than overlapping products. Our life insurance guide covers how that product works in more detail.

The calculation around income protection insurance is different if you're self-employed. There's no employer sick pay to fall back on, and Statutory Sick Pay does not apply to self-employed workers, so a period of illness or injury can hit your finances immediately rather than after a few weeks.

Income can also be irregular for many self-employed people, which affects how insurers assess how much cover you can take out.

• Insurers typically base your maximum cover on your average income over the past two to three years, rather than your most recent month or your best-ever year
• Keep clear, consistent business accounts and tax returns, since these are usually what insurers ask for as evidence of income
• Consider aligning your waiting period with any business savings buffer you hold, rather than assuming a long waiting period will always be cheaper and manageable
• If you employ staff or run a limited company, it's also worth reviewing your wider business insurance needs alongside personal income protection insurance

Some employers provide income protection insurance as a workplace benefit, usually called group income protection. It's worth understanding how this differs from a personal policy you'd arrange yourself.

How group cover differs from a personal policy

Group income protection is typically arranged and paid for, in full or in part, by your employer, often at a lower cost per person than an individual policy because the insurer is assessing a whole workforce rather than one person's individual risk. However, it isn't portable. If you change jobs, your cover usually ends with your employment, and you'd need to arrange a personal policy, subject to fresh underwriting, if you wanted to continue similar cover.

The level of cover, the definition of incapacity used, and the benefit period are all set by your employer's scheme, not by you individually. Some group schemes also pay the benefit to the employer, who then continues to pay your salary, rather than paying you directly.

Joint income protection is a different concept

It's worth clearing up a common point of confusion: joint income protection insurance usually refers to a personal policy covering two people, such as partners, under a single arrangement, not to group cover through an employer. Joint personal policies exist, but they're a separate product from workplace group schemes, and it's worth checking exactly what you're being offered before assuming the two are the same thing.

A simple way to work out a starting point for your cover level is to compare your essential monthly outgoings against any income you'd still have coming in if you couldn't work.

• Add up your essential monthly outgoings: mortgage or rent, utility bills, food, council tax, and any debt repayments
• Subtract any income you'd still receive, such as Statutory Sick Pay, employer sick pay, or a partner's income
• The remaining gap is a reasonable starting point for the level of income protection cover to consider

Your mortgage or rent is often the single biggest commitment to protect. If you're specifically thinking about how cover interacts with your home, our guide to income protection for your mortgage looks at this in more detail, and if you're planning a house move, it's worth understanding how a mortgage in principle fits alongside your wider protection planning.

Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it, so it's worth being realistic about whether your chosen level of income protection cover, combined with any savings, would genuinely be enough to keep up those repayments during a long period off work.

Once you understand roughly how much cover you need, a handful of decisions determine whether the policy you choose actually suits your circumstances.

No single insurer's website can tell you how competitors would price or assess the same application. Occupation-class underwriting, health questions, and even the definition of incapacity used can vary significantly between insurers for exactly the same person, which is why comparing across a wide range of providers matters more with income protection insurance than with many other financial products.

Insurers offering income protection insurance in the UK are regulated by the Financial Conduct Authority. You can check any insurer's authorisation on the Financial Conduct Authority register.

An advisor can talk through your occupation, health, and budget, then compare income protection providers to find options that reasonably reflect your circumstances, rather than leaving you to compare underwriting criteria across dozens of insurer websites yourself. It's a conversation, not a sales pitch: access expert advice with no pressure to proceed, and take as long as you need to decide.

If you're struggling to work through your options, or if a change in your health or circumstances is making this decision feel overwhelming, MoneyHelper offers impartial, government-backed guidance on income protection insurance and other financial products at moneyhelper.org.uk or by phone on 0800 138 7777.