Income Protection Insurance Guide
Everything you need to know about Income Protection Insurance in the UK — how it works, how much cover you can get, deferred periods, tax treatment, and what to check before you buy.
Understanding Income Protection
Income Protection Insurance replaces part of your income if illness or injury stops you working. It’s one of the least understood types of cover, but often one of the most valuable. Work through this guide to understand how it works and what to look for in a policy.
How to Choose a Policy
Six things to work through before you buy
Understand What It Covers
Income Protection pays a regular, usually monthly, replacement income if you’re unable to work due to illness or injury, continuing until you recover, return to work, retire, or the policy term ends.
Choose Your Deferred Period
This is the waiting period between your claim starting and payments beginning. Choosing a deferred period that matches your sick pay or savings can significantly reduce your premium.
Decide How Much Cover You Need
Insurers typically cap cover at 50% to 70% of gross income. Work out your essential monthly outgoings to decide on a benefit level that would keep your household afloat.
Compare Guaranteed vs Reviewable Premiums
Guaranteed premiums are fixed for the life of the policy but usually start higher. Reviewable premiums often start lower but can increase as you age or as the insurer’s claims experience changes.
Check the Definition of Incapacity
Policies vary between “own occupation” (unable to do your specific job), “any occupation” (unable to do any suited job), and definitions in between. “Own occupation” cover is usually more valuable but costs more.
Compare Quotes and Read the Exclusions
Get quotes from several insurers or a whole-of-market broker, and check exclusions, the benefit payment term, and how pre-existing conditions or high-risk activities are treated.
Before You Buy Checklist
Confirm these before choosing a policy
Deferred Periods Explained
A summary of common deferred period options and how they typically affect your premium.
| Deferred Period | Typically Suits | Premium Impact |
|---|---|---|
| 4 weeks | Little or no employer sick pay, few savings | Highest |
| 8 weeks | Short employer sick pay period | High |
| 13 weeks | Moderate employer sick pay or savings | Medium |
| 26 weeks | Longer employer sick pay entitlement | Lower |
| 52 weeks | Strong sick pay, sizeable savings buffer | Lowest |
Income Protection FAQ
Answers to the most frequently asked questions about Income Protection Insurance.
For many people, especially those without generous sick pay or savings to fall back on, Income Protection Insurance can be worth it because it replaces a meaningful share of income for as long as you’re unable to work, rather than paying a single lump sum.
Insurers typically cap cover at around 50% to 70% of your gross income, sometimes including an allowance for pension contributions, to keep an incentive to return to work once you’re able to.
If you personally pay the premiums from your own taxed income, the benefit is usually paid tax-free. If your employer pays the premiums as part of a group scheme, the payments you receive are generally treated as taxable income instead.
Critical Illness cover pays a single tax-free lump sum on diagnosis of a specified serious condition, while Income Protection pays a regular replacement income for as long as you can’t work due to illness or injury, covering a much wider range of conditions.