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Income protection insurance is a policy that pays out if you're unable to work because of injury or illness. It pays out regularly to replace a portion of your income.
Formerly known as permanent health insurance, it's there to help you pay your household bills, mortgage payments, credit card bills and everyday costs that you can no longer cover, by making sure you have a regular income over the long term.
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Income protection insurance usually pays out until your return to work, retirement, or death, although short-term income protection policies, which last for one or two years, are also available at a lower cost.
It's not the same thing as critical illness insurance, which pays out a single lump sum in the event of a serious illness, or mortgage payment protection insurance, which specifically ensures your mortgage payments will be met.
Depending on the policy, income protection insurance typically pays out between 50-70% of your usual earnings. There can be a gap – the 'deferral period' – between you becoming unable to work and receiving the first payment, depending on the policy and premiums.
Nobody likes to imagine becoming seriously ill, but income protection insurance could offer a financial lifeline if injury or illness renders you unable to work for months or years at a time.
Given the low level of state benefits available and the lack of statutory sick pay for anyone who is self-employed, most people of working age should consider some form of income protection if they can afford it.
Neither income protection nor short-term income protection pay out if you're made redundant. But they will often provide 'back to work' help if you're off sick. Note that income protection insurance is different from life insurance, which pays out if you die.
It's easy to assume that you don't need income protection if you work for an employer that offers a reasonable sick pay policy. However, relatively few employers support their staff for long periods if they're off sick from work. More generous policies can provide as much as a year on full pay; other employers will provide six months on full pay and then a period on half pay before reducing sick pay to the statutory minimum.
But many employers allow significantly less time off on full pay – your employment contract will tell you where you stand. So you'll need to consider if you could manage on a dramatically reduced income once employment benefits run out.
If you are approaching retirement, have substantial savings or have an employment contract that gives you sufficient sick pay, then income protection insurance may not be worth taking out.
Income protection covers a wide range of conditions – essentially, any illness or disability that leaves you unable to work for a period of time. This might include physical conditions, such as cancer or a heart attack, or mental health conditions, such as stress.
Illnesses or conditions that you knew about before taking out the policy – known as pre-existing conditions – typically won't be covered. And income protection insurance doesn't cover you if you are made redundant.
As well as income while you are unable to work, income protection policies often have other benefits. Not all insurers will offer all of these features, but these are some you may encounter.
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Your age, your health, whether you smoke and the percentage of income you'd like to cover will all affect your premium. Your type of job also plays a major part in determining what you'll pay.
Many insurers group jobs into four categories of risk, though some have more. For example, jobs may be divided into the following groups:
The riskier your job is deemed, the more likely it is that you may need to make a claim. Therefore, those in the riskiest occupations tend to pay higher premiums.
Other factors include whether you are paying a standard or a guaranteed premium. A standard income protection policy means the insurer can increase it over time, while a guaranteed premium stays fixed for the duration of the policy.
Using data from life insurance experts LifeSearch, we've looked at the average monthly cost for different roles.
This data was taken in April 2025 and is only an example. Individual quotes will vary depending on your personal circumstances. You may wish to speak to an independent advisor for tailored advice.
35-year-old in an administrative role (non-smoker), £1,500 monthly benefit, 3-month deferred period, coverage until age 65:
35-year-old builder (non-smoker), £1,500 monthly benefit, 3-month deferred period, coverage until age 65:
35-year-old builder (non-smoker), £1,500 monthly benefit, 1-month deferred period, coverage until age 65:
These quotes all based on guaranteed level premiums, meaning your premiums will stay the same for the duration of the policy, no matter how old you get or if your health changes.
Find out more and get advice on income protection using the service provided by LifeSearch. Discover more.
Income protection payouts are usually based on a percentage of your earnings: 50% to 70% is the norm. Sometimes, an insurer might pay out a higher percentage of one portion of your salary (perhaps the first £50,000), and a lower percentage on anything above that.
The good news is that payments from income protection policies are tax-free.
Income protection insurance will pay out for as long as you remain ill and unable to work, until you die, or until the policy term comes to an end, whichever is sooner. If you make a good recovery, income replacement insurance will often provide help in returning to work too.
Income protection policies pay out only once a pre-agreed period has passed, generally ranging from one to 12 months after you were taken ill. The longer the 'deferral' period you choose, the lower your premiums. The default deferral period tends to be 13 or 26 weeks, but it can be as low as four weeks.
How an income protection insurer defines your inability to work will also influence if, and when, your income protection policy pays out.
You will have to meet exactly the criteria laid down by the policy, and specifically the definition of the occupation covered and your ability to do alternative work, if that applies.
There are three methods insurers use: activities of daily living, suited occupation and own occupation.
These policies pay out if you can't do the job you currently hold at the point of making a claim. An insurer will not make an assessment that you could take a different, similar job, and therefore refuse to pay, like a 'suited occupation' policy (see below).
This type of income protection provides the highest level of protection should you get ill and are unable to do your job, but it is also the most expensive.
If an income protection policy is bought on a 'suited' basis, this means that your insurer accepts you can't do your job anymore, but may not pay out when you make a claim if it believes you are able to do some similar work. For example, you may have a senior role managing a team of people, which you can no longer do because of stress.
With a suited policy, the insurer might deem that you go down a level, where you're doing a similar role but no longer managing a team, and therefore refuse to pay out.
A suited policy is better than one that uses activities of daily living to assess your ability to work (see below), but the type that offers the best protection is the own occupation policy.
Some older income protection policies use a method called 'activities of daily living' - otherwise known as 'work tasks'.
These tasks are generally very basic - for example showering, getting dressed, using the toilet, brushing your teeth, or walking, climbing stairs and getting in and out of a car. If you were unable to do, for example, three of these things, the policy will pay out.
These types of policies tend to be cheaper but aren't recommended. You might be so ill that you cannot work, but can still walk, lift and write, and an insurer may turn down your claim, arguing that you could do some type of job.
Find out more and get advice on income protection using the service provided by LifeSearch. Discover more.
Yes, self-employed individuals can get income protection insurance.
It could be particularly important for self-employed workers because they don't have the same benefits as employees, such as sick leave, retirement contributions or disability benefits provided by an employer.
Self-employed individuals may add income protection to their business plan. This type of coverage typically pays out based on your share of your business's profits before taxes. If you're operating through a limited company, some insurers may also count dividends as income, as long as they're directly related to your work and come from current profits after tax.
Group income protection is a type of insurance offered by employers to their employees, designed to give financial support in the event of illness or injury that makes an employee unable to work. Unlike individual insurance policies which are purchased independently, group income protection covers a group of employees under a single plan.
Typically, the employer is responsible for covering the cost of premiums for this insurance, although in some cases employees may also contribute to the premiums. The coverage extends to all employees included in the group plan, offering them a safety net in times of need.
If an employee covered by the group income protection plan is unable to work due to a covered condition, the insurance provides them with a regular income replacement, usually a percentage of their salary. This financial support continues until the employee can return to work or reaches a specified retirement age.
Choose life insurance, health insurance, income protection and/or critical illness cover via LifeSearch and get a £50 John Lewis gift card.
Get a quotePolicy must be active for 90 days before gift card is issued. T&Cs apply.
Accident, sickness and unemployment policies (ASU) are a cheaper alternative, named because – depending on your choice – you can buy policies to cover you in the event of accident, sickness or unemployment.
Like short-term income protection policies, they'll typically provide cover for around one to two years.
The main difference with ASU policies is they're sold without full medical underwriting, which means you have less certainty that you'll be covered when you put in a claim.
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