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Income protection insurance

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What is income protection insurance?

Income protection - also known as loss of earnings income - is designed to protect your income if you fall sick, get injured or lose your job. There are several types of income protection insurance to choose from depending on your needs.

It provides you and your family or dependants with regular payments while you’re unable to work.

Income protection insurance can help you maintain you and your family’s standard of living. You can use it to pay your mortgage, loans, living expenses and bills.

Do I need income protection?

This is entirely down to you - everyone's financial, personal and professional situations are different. Income protection could be worth considering depending on how you answer these questions:

  • If you have dependants, would you still be able to afford your outgoings if you lost your income?
  • Do you have enough savings to last until you find a new job or recover from an injury or illness?
  • Does your employer provide any sickness benefits and if so, how long do they last?
  • Is Statutory Sick Pay (SSP) enough to cover all your outgoings? You can get £109.40 per week SSP if you’re too ill to work. It’s paid by your employer for up to 28 weeks but would this be enough time to recover?
  • If you're self employed, you can't claim any employee health benefits. You could still get income protection insurance but policies vary. Just make sure you answer questions about your employment status accurately when you compare quotes.

What are the different types of income protection insurance?

The main types are:

  • Accident and sickness cover
  • Accident sickness and unemployment cover (ASU)
  • Payment protection insurance (PPI)
  • Mortgage payment protection insurance (MPPI)

Accident and sickness cover. This covers you if you’re unable to work due to injury or illness. This can be a long or short-term policy.

Accident, sickness, and unemployment cover (ASU). Similar to accident and sickness, ASU also covers redundancy or involuntary unemployment. ASU policies are usually short term, lasting for around 12 months and aren’t tied to a specific debt.

Payment protection insurance (PPI). Designed to cover a single debt such as a mortgage, loan or credit card, PPI continues to make payments if you're unable to work. It normally covers for 12 - 18 months.

Mortgage payment protection insurance (MPPI). This is designed to continue to pay off your mortgage if you can’t work. These policies can cover your mortgage payments for 6 months to 2 years, depending on the policy.

What does income protection cover?

Income protection normally pays out around 70% of your earnings before tax. You can use your payout to cover mortgage or rent payments, bills or food, travel and other living expenses.

Accident and sickness cover generally offers short-term cover, lasting for around 12 months. However, ASU comes in 2 forms:

  • Short-term income protection insurance
  • Long-term income protection insurance

Short-term income protection insurance generally pays out for a shorter period, typically covering you for 1 to 2 years. But some policies could even pay out for up to 5 years.

Long-term income protection insurance usually runs for a much longer period. Normally until either you’re able to return to work, reach retirement age or until the policy term ends. You usually have to get cover for a minimum of 5 years.

What doesn't income protection cover?

You might not be covered if:

  • You’re fired
  • You leave your job voluntarily
  • You’re injured due to a reckless act
  • Your injuries are self-inflicted
  • Your illness is a result of substance abuse

You’re fired. If you lose your job due to something like gross negligence, your redundancy policy may not pay out.

You leave your job voluntarily. If you quit your job, and don’t have another one lined up, your policy normally won’t cover you.

You’re injured due to a reckless act. If you’re unable to work due to an injury you inflicted on yourself through a reckless or negligent act, you might not be covered.

Your injuries are self-inflicted. Injuries resulting from self harm typically aren’t covered.

Your illness is a result of substance abuse. Health issues clearly relating to substance abuse may not be covered.

Depending on your policy, there may be other exclusions too - so it’s always worth checking your policy details before getting cover.

How does it work?

Income protection usually covers up to 70% of your gross monthly income (before tax). The length of this cover varies depending on the policy you choose.

It pays out if you're ill, injured or made redundant.

After you're unable to work, you need to wait a set period of time until you can claim. This is known as a 'deferred period'.

The longer you wait before needing your payments, the cheaper your policy could be. When working out your waiting time you should consider:

  • If you can’t afford a day without pay
  • If you could live solely off statutory sick pay for the 28 week period before starting your income protection payments
  • Whether you have any savings you would be willing to use for the first month or so

What our insurance expert says

"It's important to consider whether statutory sick pay would be enough to maintain your family’s lifestyle. Factor in and additional sick pay benefits, if your employer offers them.

If you think you or your family might struggle while you're out of work then you may want to consider income protection insurance."

Matthew Harwood, Home & lifestyle insurance expert at Confused.com
Home & lifestyle insurance expert Confused.com logo

How much is income protection insurance?

The cost of your policy depends on a range of factors including your:

  • Salary
  • Occupation
  • Age
  • Health
  • Lifestyle

It also depends on which one of the 3 payment types you choose:

Fixed premiums. This means the terms of the policy stay the same, unless you choose to make a change. As the policy can’t be altered by the insurer, you’ve got comfort in knowing the monthly cost will stay the same.

Reviewable premiums. This type can be changed after a set period and is likely to increase at the insurer’s discretion over the long term.

Age-related premiums. This is based on your age and goes up each year as you get older during the term of your policy. Some insurers provide a schedule with the increases throughout the term of the policy, but not all of them do.

Page last reviewed: 27 February 2024

Reviewed by: Matthew Harwood