Income protection insurance pays you a monthly income if you’re unable to work because of illness or injury. It gives you money to put towards your mortgage, household bills and other regular expenses while you’re off work.
The amount you receive depends on your policy, and payments usually start after an agreed waiting period. If you’re thinking about taking out income protection or want to understand how it works, keep reading as we explain what it covers, who it could suit and what to look out for.
What Is Income Protection Insurance?
Income protection insurance pays you a regular monthly income if you’re unable to work because of an illness or injury. Instead of replacing your full salary, it usually pays between 50% and 70% of your pre-tax earnings, depending on the insurer and the policy you choose.
Payments don’t start straight away. You’ll agree a waiting period, known as the deferred period, when you take out the policy. This could be anything from four weeks to several months. Choosing a longer waiting period can sometimes reduce the cost of your monthly premium.
Once your claim has been accepted and the deferred period has ended, you’ll receive monthly payments until you’re able to return to work, your policy ends or you reach the maximum claim period set out in your policy.
You can use the money however you need to. Some people put it towards their mortgage, while others use it to cover food shopping, utility bills or other monthly costs.
How Does Income Protection Insurance Work?
When you apply for income protection insurance, your insurer will ask questions about your health, job and income. They’ll use this information to decide whether they can offer you cover and how much your monthly premium will be.
If you’re unable to work because of an illness or injury, you’ll need to make a claim with your insurer. They’ll review your claim and may ask for medical evidence or information from your GP before making a decision.
Once your claim has been approved, your payments will begin after your chosen deferred period has ended. You’ll continue receiving monthly payments until you’re well enough to return to work, your policy reaches its maximum claim period or the policy ends.
What Does Income Protection Insurance Cover?
Income protection insurance usually covers illnesses and injuries that stop you from doing your job. Each policy is different, so it’s always worth checking what’s included before taking out cover.
You can use your monthly payments to cover everyday expenses such as:
- Mortgage repayments
- Rent
- Household bills
- Food shopping
- Council tax
- Utility bills
- Childcare
What Doesn’t Income Protection Insurance Cover?
Income protection insurance doesn’t cover every situation.
Most policies won’t pay out if:
- You lose your job through redundancy.
- You choose to leave your job.
- You don’t tell your insurer about a medical condition when applying for cover.
- Your claim falls under an exclusion listed in your policy.
Your insurer will explain exactly what’s covered before your policy starts.
Who Is Income Protection Insurance For?
Income protection could be a good option if your income pays for your regular monthly expenses.
For example, it may suit:
- Homeowners with a mortgage.
- Self-employed workers who don’t receive employer sick pay.
- Families who rely on one income.
- Anyone with limited savings.
Income protection is one type of mortgage protection that can help if illness or injury affects your income.
Income Protection Insurance vs Critical Illness Cover
Income protection insurance and critical illness cover both provide financial support, but they work in different ways. Here’s a quick comparison.
| Income Protection Insurance | Critical Illness Cover |
|---|---|
| Pays a monthly income if you’re unable to work because of illness or injury. | Pays a one-off lump sum if you’re diagnosed with a serious illness covered by your policy. |
| Payments can continue while you’re off work, depending on your policy. | The payment is made once your claim has been approved. |
| Covers a wide range of illnesses and injuries that stop you working. | Only covers the medical conditions listed in your policy. |
| You can use the monthly payments for mortgage repayments, bills or everyday living costs. | You can spend the lump sum however you choose, such as paying off part of your mortgage or covering other expenses. |
| Doesn’t cover redundancy. | Doesn’t cover every illness, only those included in the policy. |
Is Income Protection Insurance Worth It?
Yes, if you’d struggle to cover your monthly bills without your income. Income protection gives you a regular monthly payment while you’re unable to work, which can make it easier to keep up with your mortgage and other household expenses. For a closer look at the pros and cons, read our guide to income protection insurance.
No, if you already have enough financial support without it. Some employers offer generous sick pay, and some people have savings that could cover their bills for several months. In those situations, income protection may not be as important.
If you’re unsure, speaking to a protection adviser can help you understand which options suit your circumstances.
Is Income Protection Right for You?
Income protection insurance isn’t something everyone needs, but it can be a good option if your income covers your mortgage and other monthly bills. If being off work for a long period would make it difficult to keep up with those payments, it’s worth looking at the different policies available.
If you’d like to discuss your options, get in touch with our team. We can explain how income protection works, answer your questions and help you compare policies from a range of insurers.
FAQs
Can I have more than one income protection insurance policy?
Yes, although the total amount you receive is usually limited to a percentage of your income. If you already have an income protection policy, it’s worth checking the terms before taking out another one. A protection adviser can also help you understand how multiple policies work together.
Does income protection insurance cover stress and mental health conditions?
It can. Many income protection policies cover mental health conditions such as stress, anxiety and depression if they stop you from working and meet the insurer’s definition of incapacity.
Can I get income protection insurance if I have a pre-existing medical condition?
Yes, but it depends on the condition and the insurer. Some insurers may offer cover with exclusions, while others may charge a higher premium or decline the application.
Does income protection insurance cover part-time workers?
Yes. Many insurers offer income protection to part-time workers, although the amount of cover available will depend on your earnings and the insurer’s criteria.
Will my employer’s sick pay affect my income protection claim?
Yes. Some policies take employer sick pay into account, while others begin paying after your employer’s sick pay ends. This depends on your insurer and the terms of your policy.
