A Comprehensive Guide to Income Protection Insurance

August 31st, 2023
A Comprehensive Guide to Income Protection Insurance

In today’s unpredictable world, protecting our financial well-being is more important than ever. One aspect that often gets overlooked is safeguarding our income in case of illness or injury. This is where income protection insurance comes into play. Income protection insurance, also known as sick pay insurance or salary protection, provides a financial safety net in the event that you are unable to work due to health-related reasons. In this comprehensive guide, we will explore the ins and outs of income protection insurance, including what it is, how it works, and why it is essential for your financial security.

What does Income Protection Insurance mean?

Income protection insurance is a type of personal insurance policy that acts as a form of sick pay or salary protection. It provides a regular income to the insured individual if they are unable to work due to illness or injury. Unlike state benefits, which often provide minimal financial support, income protection insurance ensures that you can maintain your standard of living and meet your financial commitments during periods of incapacity.

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What does Income Protection cover me for?

Income protection insurance covers a wide range of illnesses, injuries, and disabilities that may prevent you from working. This includes both physical and mental health conditions. The coverage typically pays out a percentage of your income, usually up to 70%, depending on the policy you choose. This income can be used to cover essential expenses such as mortgage or rent payments, bills, and daily living costs, easing the financial burden during your time off work.

The Duration of Income Protection Payments

The duration of income protection payments depends on the type of policy you select. There are two main types of income protection insurance: short-term and long-term.

Short-term income protection insurance provides coverage for a limited period, usually between one to five years. If you are unable to work during this time, the policy will pay out a monthly benefit to replace your income.

Long-term income protection insurance offers coverage until you either recover and return to work, reach the end of your policy term (often retirement age), or pass away. This type of coverage provides greater security and peace of mind, ensuring that your income is protected for the long term.

Determining the Right Amount of Coverage

When selecting an income protection insurance policy, it’s crucial to determine the right amount of coverage for your needs. This will depend on various factors, including your monthly expenses, existing savings, and any other sources of income you may have. As a general guideline, income protection insurance typically covers up to 70% of your income.

However, it’s essential to assess your specific financial situation and consult with a financial advisor to determine the appropriate level of coverage for you.

The Importance of Income Protection Insurance

Income protection insurance is a vital safeguard for individuals and families. It provides financial security during periods of illness or injury when your ability to earn an income is compromised. Here are some key reasons why income protection insurance is the one insurance that everyone should have but under 10% of the UK have a policy:

  1. Maintain your standard of living: Income protection insurance ensures that you can continue to meet your financial obligations and maintain your lifestyle, even if you are unable to work.
  2. Protect your loved ones: If you have dependents or people relying on your income, income protection insurance provides peace of mind, knowing that they will be financially supported during your time off work.
  3. Supplement inadequate state benefits: State benefits, such as Employment and Support Allowance or statutory sick pay, may not provide sufficient financial support. Income protection insurance fills this gap, offering a more substantial income replacement.
  4. Flexible coverage options: Income protection insurance allows you to tailor your coverage to your specific needs and circumstances. You can choose the waiting period (deferred period) before the benefit payments begin, as well as the duration of coverage.

Eligibility for Income Protection Insurance

To be eligible for income protection insurance, you must meet certain criteria. These criteria may vary depending on the insurance provider and policy terms. In general, income protection insurance is available to:

  • Individuals employed full-time (working more than 16 hours per week)
  • Self-employed individuals who earn a wage

It’s important to review the specific eligibility requirements of different insurance providers to find the policy that best suits your needs.

Government Support and Income Protection Insurance

One common question is whether the government will provide financial support if you are unable to work due to illness or injury. While there are state benefits available, such as Employment and Support Allowance and statutory sick pay, the amount provided is often minimal. Income protection insurance offers a more comprehensive solution, ensuring that you have adequate financial support during your time off work.

The Waiting Period (Deferred Period)

When you purchase an income protection insurance policy, there is typically a waiting period, also known as the deferred period, before the benefit payments begin. The deferred period can range from a day to several weeks or even months. The longer the deferred period you choose, the lower the premium you will pay for your policy. It’s important to consider your financial situation and how long you can sustain without an income when selecting the deferred period that aligns with your needs.

Making a Claim on Income Protection Insurance

If you find yourself in a situation where you need to make a claim on your income protection insurance, the process is relatively straightforward. Here are the general steps to follow:

  1. Check your policy terms: Review your policy to understand the specific requirements and conditions for making a claim.
  2. Notify your insurance provider: Contact your insurance provider to inform them of your intention to make a claim. They will guide you through the process and provide the necessary claim forms.
  3. Complete the claim forms: Fill out the claim forms accurately and provide any supporting documentation required, such as medical reports or proof of incapacity.
  4. Submit the claim: Submit the completed claim forms and supporting documentation to your insurance provider. Ensure that you meet any deadlines or requirements specified in your policy.
  5. Claim assessment: The insurance provider will assess your claim based on the policy terms and the information provided. They may request additional documentation or clarification if needed.
  6. Benefit payment: If your claim is approved, the insurance provider will begin making regular benefit payments according to the policy terms and the agreed-upon coverage amount.

Common Claims on Income Protection Insurance

Income protection insurance covers a wide range of illnesses, injuries, and disabilities that can affect your ability to work. Some of the common claims on income protection insurance include:

  1. Physical health conditions: This includes injuries, surgeries, chronic illnesses, and other physical health issues that prevent you from working.
  2. Mental health conditions: Income protection insurance often covers mental health conditions, such as depression, anxiety, or stress, which can significantly impact your ability to work.
  3. Serious illnesses: Certain serious illnesses, such as cancer or heart disease, may be covered by income protection insurance, providing financial support during treatment and recovery.
  4. Accidents and injuries: If you are involved in an accident or sustain an injury that hinders your ability to work, income protection insurance can help replace your lost income.

It’s crucial to review the specific coverage details of your income protection insurance policy to understand the scope of coverage and any exclusions or limitations.

Income protection and Life Insurance joint policy

An income protection and life insurance joint policy is a combination of two different types of insurance coverage: income protection insurance and life insurance. This joint policy offers a comprehensive approach to safeguarding your financial well-being in both life-altering situations and the event of your passing.

Benefits of a Joint Policy: Combining income protection and life insurance into a joint policy offers several advantages:

  1. Comprehensive Coverage: A joint policy addresses both short-term financial needs (income protection) and long-term financial security (life insurance) in a single package.
  2. Cost Savings: Bundling both types of insurance in a joint policy could potentially be more cost-effective than purchasing separate policies.
  3. Convenience: Managing a single joint policy is often more convenient than dealing with multiple policies from different providers.
  4. Customisation: You can often tailor the coverage levels and terms to suit your specific needs, ensuring you’re adequately protected in both scenarios.
  5. Simplified Underwriting: Applying for a joint policy might involve a simplified underwriting process, as both components are underwritten together.

Before purchasing a joint policy, it’s crucial to thoroughly understand the terms, coverage limits, waiting periods, benefit periods, and any exclusions associated with both the income protection and life insurance components. Additionally, consider seeking advice from a financial advisor or insurance professional to ensure that the joint policy aligns with your financial goals and circumstances.


Income protection insurance is a valuable tool for protecting your financial well-being in the face of unexpected illness or injury. It provides peace of mind, knowing that you have a safety net to replace your income and support your financial obligations during periods of incapacity. By selecting the right income protection insurance policy and tailoring it to your specific needs, you can ensure that you and your loved ones are protected from the financial hardships that can arise from being unable to work. Don’t leave your financial security to chance – explore income protection insurance options and secure your income today.

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