Types of income protection insurance
Income protection isn't just one thing. It refers to a group of insurance products designed to help you stay afloat if your income is suddenly reduced.
The main types of income protection are:
- Accident and sickness cover
- Accident sickness and unemployment cover (ASU)
- Payment protection insurance (PPI)
- Mortgage payment protection insurance (MPPI)
We only compare accident and sickness cover or acident, sickness and unemployment cover.
Accident and sickness cover covers you if you’re unable to work due to injury or illness. This can be long or short term.
Accident, sickness, and unemployment cover (ASU) covers you if you’re unable to work because of a short or long-term illness, an accident, 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) is designed to cover a single debt such as a mortgage, loan or credit card. You can use this cover to continue making your repayments towards this debt if you’re unable to work. PPI normally pays out for 12 – 18 months.
Mortgage payment protection insurance (MPPI) will continue to pay off your mortgage payments if you can’t work. These policies can cover your mortgage payments for 6 months to 2 years, depending on the policy.
How much is income protection insurance?
The cost of your income protection insurance depends on a range of factors, including:
- Salary
- Occupation
- Age
- Health
- Lifestyle
It also depends on the payment type you choose. There are three payment types that insurers offer. You’ll find these under the ‘premium types’ section on the result page:
- Fixed premiums
- Reviewable premiums
- Age-related premiums
Fixed premiums do not change during the term of the policy, unless you choose to make a change to the policy. As the premium can’t be altered by the insurer, you’ve got comfort in knowing the monthly cost will stay the same.
Reviewable premiums can be changed after a set period and are likely to increase at the insurer’s discretion in the long term.
Age-related premiums are based on your age and will go up each year as you get older during the term of your policy. Some insurers provide a schedule with the increases to the premiums shown throughout the term of the policy, but others don’t.
It’s best to check the policy details so you can choose a payment type that suits how you want to pay, and to avoid any unpleasant surprises.
Need more help?
How much income protection insurance do I need?
This depends on whether you choose a short or long-term policy, how much income you have in the first place, and how much money you need to cover your bills, mortgage and other essential outgoings if you’re unable to work due to illness or accident.
Consider these as a starting point in determining how much cover you’re likely to need. You can also choose to have the policy increase each year so that the benefit rises in line with inflation.
Insurers will typically cover up to 70% of your salary before tax. Some insurers will restrict the amount you can receive to a maximum, which motivates you to get better and return to work.
Make sure you find out what benefits you’re entitled to if you’re unable to work. Check the exact details of what your employer has to pay you and for how long. If you benefit from an Employers Group Income Protection Scheme, check how long you’ll get paid for.
Does income protection cover redundancy?
We currently compare two types of income protection - accident and sickness cover; and accident, sickness and unemployment cover.
Most accident, sickness and unemployment policies will protect you against the loss of income if you lose your job through redundancy. Accident and sickness only policies will not.
There are exceptions though: if you’re fired, rather than made redundant, things can be different and you may not be eligible for a pay-out.
If this is something that concerns you, check exactly what your policy will cover before taking out cover.
Can you get income protection insurance if you're self employed?
You might be able to get income protection insurance if you’re self-employed – policies vary, so it’s important to check your policy’s wording.
You should also make sure you answer questions about your employment status accurately when you take out income protection cover.
Is income protection taxable?
No, provided you’re paying for the insurance yourself, there’s no tax to pay on any benefits you receive. Any money you get from your income protection policy will be given to you tax-free.
Do I need income protection insurance?
If you don’t take out income protection insurance, you may find you have to rely on statutory sick pay. This is currently just £99.35 per week and is paid by your employer for up to 28 weeks.
You should consider whether statutory sick pay would be enough to maintain your family’s lifestyle.
It’s worth keeping in mind that the more dangerous your job, the more likely you are to be injured. If you’re self-employed you may also benefit from income protection as you may be vulnerable if sickness or injury prevents you from working.
What is income protection waiting time?
When filling out the income protection quote form you’ll see a question on ‘waiting time’ – this is the amount of time you must be unable to work before your monthly benefit will begin to be paid.
The longer you can 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
- If your company offers any other sick pay benefits on top of statutory sick pay
Can you have income protection insurance and claim Universal Credit?
Yes, you can have Universal Credit and income protection insurance. However, there is an overlap as if you make a claim on your insurance policy and start receiving monthly payments, it lowers the amount of Universal Credit you’re entitled to. You can check on the Money Advice Service.
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