Your income pays for your mortgage, rent, bills and everyday spending. If illness or injury stops you from working, those payments still need to be made.
Income protection insurance can replace part of your income while you’re unable to work. The amount you can receive, when payments start, and how long they continue will depend on the policy.
Keep reading to find out how income protection works, what it covers, how much it can cost and whether it’s worth considering.
What Is Income Protection Insurance?
Income protection insurance pays you a regular monthly income if an illness or injury stops you from working. Individual policies usually cover a percentage of your earnings rather than your full salary.
The amount covered is set when you take out the policy. The Association of British Insurers (ABI) says the cost depends on factors including your age, occupation, health, the percentage of income you want covered and when the policy is due to end.
You can usually use the money for whatever you need, including mortgage or rent payments, household bills, food and other regular expenses. You can also learn more about income protection insurance and how it works.
What Does Income Protection Cover?
Income protection is mainly designed to cover loss of earnings caused by illness or injury. The exact cover and exclusions will depend on the policy.
The ABI says income protection covers most illnesses that leave someone unable to work because of illness or injury, including stress-related illness, mental health conditions and physical health conditions. It does not pay out for redundancy.
| Usually covered | Usually not covered |
|---|---|
| Illness that stops you from working | Redundancy |
| Injuries that prevent you from working | Choosing to leave your job |
| Physical health conditions covered by the policy | Claims that fall under a policy exclusion |
| Mental health conditions, including stress, anxiety or depression, where covered by the policy | Unemployment that isn’t covered by the policy |
| Long-term conditions that meet the policy’s definition of incapacity | Deliberately causing an injury or illness |
| Conditions that prevent you from carrying out your occupation, where the policy uses an own-occupation definition | Any condition or circumstance specifically excluded from your policy |
How Much Does Income Protection Insurance Cost?
There isn’t one standard price for income protection insurance. Your age, job, health, income, amount of cover, deferred period and policy length can all change the premium.
The table below gives an idea of how prices can vary by age and occupation. These are illustrative examples, based on a healthy non-smoker taking £1,500 a month of cover, with a four-week deferred period and cover to age 65. Actual quotes can be higher or lower.
| Age | Lower-risk office job | Higher-risk manual job | Example monthly benefit |
|---|---|---|---|
| 25 | £12–£18 | £25–£40 | £1,500 |
| 30 | £15–£22 | £30–£50 | £1,500 |
| 35 | £20–£30 | £38–£65 | £1,500 |
| 40 | £28–£42 | £52–£85 | £1,500 |
| 45 | £38–£58 | £70–£115 | £1,500 |
| 50 | £52–£80 | £95–£155 | £1,500 |
The amount you can insure is also linked to your income. For example, if an insurer allows cover of 60% of your gross annual income, a £40,000 salary would give a potential monthly benefit of about £2,000 before any policy limits or other deductions.
| Annual income | 50% cover | 60% cover | 70% cover |
|---|---|---|---|
| £30,000 | £1,250/month | £1,500/month | £1,750/month |
| £40,000 | £1,667/month | £2,000/month | £2,333/month |
| £50,000 | £2,083/month | £2,500/month | £2,917/month |
| £60,000 | £2,500/month | £3,000/month | £3,500/month |
| £80,000 | £3,333/month | £4,000/month | £4,667/month |
These figures show the potential benefit only. An insurer may apply its own maximum benefit and affordability rules, so you may not be able to insure the exact percentage shown.
Is Income Protection Worth It?
Yes, if losing your income would make it difficult to pay your regular expenses.
It can be worth considering if you:
- Have a mortgage or rent to pay.
- Don’t receive much sick pay from your employer.
- Are self-employed and don’t have employer sick pay.
- Have children or other people who rely on your income.
- Don’t have enough savings to cover a long period off work.
- Would struggle to replace your income if you became ill or injured.
It may be less useful if you already have long-term sick pay, substantial savings or income protection through your employer. The ABI recommends checking how long employer sick pay lasts and how much you have in savings when considering individual income protection.
The cost also needs to fit your budget. A policy that provides a useful monthly benefit but has a premium you cannot comfortably maintain may not be suitable.
Other Protection to Consider
Income protection isn’t the only way to protect your finances. The right option will depend on what you want the policy to pay for and what happens if you can no longer work.
1) Critical Illness Cover
Critical illness cover pays a tax-free lump sum if you’re diagnosed with a medical condition that meets the definition in your policy. The ABI’s minimum standards include cancer, heart attack and stroke, although insurers can cover additional conditions. The illness must also meet the severity and other requirements set out in the policy.
Unlike income protection, the payment is normally made as one lump sum after an accepted claim. The money can be used for mortgage repayments, household bills, treatment costs or other expenses.
2) Life Insurance
Life insurance pays a lump sum if you pass away during the policy term. With term life insurance, the cover lasts for a set period, such as 20 or 25 years. If the policyholder passes away during that period, the insurer pays the agreed amount to the beneficiaries, subject to the policy terms.
3) Statutory Sick Pay
Statutory Sick Pay (SSP) is the minimum sick pay provided by law to eligible employees who are off work due to illness. It is paid by the employer rather than an insurance company.
From April 2026, eligible employees can receive SSP from the first full day of sickness. The rate is 80% of average weekly earnings or £123.25 a week, whichever is lower, and it can be paid for up to 28 weeks. The lower earnings limit that previously applied to SSP was also removed.
4) Employer-Provided Income Protection
Some employers provide income protection as part of their employee benefits. This is usually called Group Income Protection (GIP).
The employer takes out the policy, and the insurer pays a regular income when an employee meets the policy’s definition of incapacity. The employer decides the level of cover, the waiting period and how much of the employee’s salary the policy can replace.
5) Savings
Savings aren’t an insurance policy, but they can provide money during a period when you’re unable to work. The amount available depends on how much you’ve saved and how quickly you need to use it.
Talk to an Income Protection Adviser
The right level of income protection depends on your income, monthly expenses, sick pay, savings and the cover already available through work.
At JG Mortgage Services, we can help you look at the different income protection options and compare policies from a range of insurers. Talk to one of our advisers if you’d like to discuss your options.
FAQs
Does income protection affect Universal Credit?
It can. Individual income protection payments may affect the amount of Universal Credit you receive. The ABI notes that individual income protection is subject to a deduction in Universal Credit at a rate of £1 for every £1 of insurance benefit.
Can I get income protection if I’m self-employed?
Yes. Self-employed workers can apply for individual income protection. This can be particularly relevant if you don’t have employer sick pay to fall back on.
Are income protection payouts taxable?
Individual income protection payouts are generally tax-free when the premiums were paid from income that has already been taxed, and no income tax relief was received on those premiums. HMRC confirms that qualifying payments from sickness, disability and unemployment policies can be exempt from income tax.
Can income protection pay out if I return to work part-time?
Some policies allow payments to continue if you return to work but your income remains lower because of your illness or injury. This is often called proportionate benefit or partial benefit, but the rules vary between insurers.
Can I claim income protection more than once?
Yes, some policies allow more than one claim during the policy term. The rules depend on the payment period, claim limits and the wording of your policy.
